Professor Christian Borch (Copenhagen Business School): “The Social Structure of Algorithmic Trading”

The FinWork Futures Research Centre organises research seminars, workshops and other events investigating the future of financial work in relation to the global rise of digital technologies.

This week we welcome Professor Christian Borch from Copenhagen Business School, Copenhagen, Denmark.

“The Social Structure of Algorithmic Trading”

Abstract:

The rise of new economic sociology in the early 1980s owed much of it success to advances in social network theory. Pioneering work, such as that of Wayne Baker, demonstrated that even the ‘engine room’ of financial markets – the so-called trading floors on which traders were competing with one another – were embedded in social networks. Interestingly, however, the traditional face-to-face networks of financial exchanges only play a marginal role in present-day markets, in which human traders are increasingly being replaced by fully automated algorithms.

This prompts the question of whether the type of social network theory that has figured centrally within new economic sociology remains analytical useful when, in fact, it is fully automated algorithms which are behind the bulk of today’s trading. In other words, is social network theory still a potent framework with which to understand financial trading when such trading takes place in an increasingly non-human setting? In this paper, we update social network theory for an algorithmic, non-human market environment.

By combining qualitative fieldwork and agent-based modelling, we examine the types of networks that exist between algorithmic market participants. Extending insights by Karin Knorr Cetina, Alex Preda and Donald MacKenzie, we suggest that algorithms engage in social relationships with one another and that social network theory is helpful in shedding light on this social structure of algorithmic trading.