Toshiba and Dharma Capital launch joint experiment in financial markets
Toshiba Corporation (President and CEO, Satoshi Tsunakawa) and Dharma Capital KK (Founder and CEO, Akiyoshi Shiotani) will launch a joint project to verify the effectiveness of high frequency trading (HFT) strategies for Japanese listed stocks based on optimal solutions presented by a quasi-quantum computer, Toshiba’s Simulated Bifurcation Machine.
This is the world's first attempt to verify the effectiveness of quasi-quantum computers when they are applied to the HFT strategies in actual financial trading systems.
Realising financial markets in which all investors can trade at fair values requires improvements in market efficiency and liquidity.. High frequency traders, who continue to become more important as trading entities in financial markets, are characterised by repeating buying and selling of financial products at high-speed and high-frequency using trading algorithms that enable them to make high-speed decisions. It is believed that such HFT activities contribute to improving market efficiency and liquidity.
For example, in the stock market, such factors as excessive responses to the news by the media can cause prices of individual stocks to deviate significantly from their fair values (“mispricing”), which may cause investors to trade at unfavorable prices. High frequency traders have the ability to quickly eliminate these mispricings and improve market efficiency and liquidity by executing transactions that match overvalued/undervalued financial products even when markets are in such volatile situations.
Conventional HFTs tend to focus on self-evident arbitrage opportunities where high speed is the main source of competitiveness. An integration with mathematical models that require high-precision wide-area search using sophisticated evaluation functions to detect mispricings has not necessarily progressed over the years. On the other hand, in recent years, there has been rapid progress in the development of quasi-quantum computers that can solve large-scale combinatorial optimisation problems at high speeds and low latency, which was previously difficult.
By combining this quasi-quantum technology with conventional HFT technology, it is now possible to search a wider area, which includes statistical arbitration opportunities that have not been targeted before, with a sufficient level of low latency against market price fluctuations. Establishing trading systems that can quickly detect ever-untargeted mispricings and eliminate them is expected to further improve market efficiency and liquidity. The arrival of quasi-quantum technology envisions the new concept of algorithmic trading, but due to the nature of finance and especially of HFT, it needs to be validated in the actual market first.
In this joint experiment, Toshiba and Dharma Capital will examine the effectiveness of HFT strategies that are feasible only with the computational power of Toshiba’s Simulated Bifurcation MachineTM, which is a quasi-quantum computer that solves combinatorial optimisation problems at the world highest speed and largest scale. This is the world’s first attempt to verify the effectiveness of quasi-quantum computers when they are applied to HFT strategies in actual financial markets.