Google is now running the D-Wave “quantum” computer it acquired from Canadian company D- Wave. On the scale of quantum computers that’s awesome. Google is still figuring out what it can do with it. IBM claims to have the real McCoy. It’s widely suspected that a number of private companies are well-advanced.
The NSA has already been confirmed to be building one. So we can be dead sure that the other countries aren’t far behind. In fact it’s quite on the cards that one or more could be ahead. It could calculate the values of all counterparty contracts in the market for the next year. Or simultaneously go short and long on every stock in the world. and so on.
Quantum computers can in certain circumstances be used to introduce and leverage time dilation. Once you have a quantum computer, totally new types of arbitrage are going to open up. They will do things that are unimaginable right now in the investment and equity prediction spaces, inter many alia. And it will all happen pretty soon.
The good news:
- Quantum trading will open up new opportunities for active investing once quants figure out how to make it all work.
- Same thing for alternative investing.
- It’s going to change the nature and potential profitability of arbitrage.
- We might all actually get to know the real exposure from derivatives, synthetics and exotics.
The bad news
- Trading ahead of the market will now become vastly more simple, powerful and hard to detect.
- There’s going to be some huge mistakes made by traders, any one of which could break the markets globally.
- The problem of rogue traders is going to be much more difficult and serious. Instead of trades for a few million maybe they will be for a few billion, or even more. How about a rogue trade for several trillion that goes wrong?
- This is going to lead to serious issues in money laundering, and other computer-enabled criminal acts such as digital theft (c.f. the IMDB mess in Malaysia and the recent Bangladeshi central bank heist).
The terrible news (for traders and their sponsors):
- The Feds are going to amp up their regulatory efforts – by a quantum leap
- Trading and investment services are going to have to ramp up their compliance by another even more quantum amount, which will make their already-diminishing earnings look even more pitiful
- “Too big to fail” is going to mean companies that are much smaller than right now. A company with just a few traders could well be too big to fail – maybe it can’t fail even if it’s one person. That means a lot more regulatory pressure on trading and financial services firms, even tiny ones.