Quantum Trading: Goldman Sachs Emerges into the Field of AI

BlairThe article was written by Blair Goldenberg, a Financial Analyst at I Know First, and enrolled in a Masters of Finance at Colorado State University.

Quantum Trading


  • Goldman Sachs Finally Investing in Quantum Trading
  • Competition in the Quantum Trading Sector

We’re going from a world where people give machines rules to a world where people give machines problems and the machines learn how to solve them on their own.”” Heath Terry – Head of Internet Research, Goldman Sachs



Goldman Sachs Finally Investing in Quantum Trading

The Goldman Sachs Group, Inc. is a leading global investment banking, securities, and investment management firm that provides a wide range of financial services to a substantial and diversified client base that includes corporations, financial institutions, governments and individuals. Founded in 1869, the firm is headquartered in New York and maintains offices in all major financial centers around the world.

In the past, Goldman Sachs hasn’t had much luck with quantum trading, keeping the company focused on human picked trades. However, recently Goldman is beginning to reinvest into artificial intelligence hedge funds, trying to secure a position in the top three funds in sales. The company aims to increase speed and efficiency within quantum trading, which has been the main driving force in the AI world, increasing the importance of this investment. Goldman is coming in pretty late in the game, where competition in the field has already weeded out less successful AI systems, making the top companies more experienced and trusted. However, Goldman has been in the financial industry since 1869 and many of these AI companies came around during the tech age. No matter how advanced these top AI hedge funds are, Goldman can catch up and surpass them with ease.

Quantum Trading

Competition in the Quantum Trading Sector

Goldman Sachs biggest competitors in the quantum trading sector are Two Sigma and the Renaissance Technologies’ Medallion Fund. Two Sigma manages $40 billion in assets and relies on Deutsche Bank as their broker. The Medallion Fund manages $36 billion in assets and also uses Deutsche Bank as well as JP Morgan and Morgan Stanley as their brokers.

Goldman Sachs hired Mahajan, an engineering firm, to move the company in the quantum trading field in 2015 and has completed most of the improvements in 2016. Also in that timespan, Goldman has strengthened their AI structure to allow about 130 systems to analyze information about “compliance, risk, and auditing on every trade” (Retrieved from Bloomberg Markets).


Investment into AI trading has garnished new plans. The first is to persuade other quantum hedge funds that specialize in risk-aversion to partner with Goldman Sachs. Additionally, Goldman plans on working with their existing client base who have already used human-based trading to begin using quantum based trading.

Because Goldman Sachs has an existing client base, certain fees to the consumer won’t apply as they don’t have to outsource to another exchange. This would reduce any costs on the consumer side, making their quantum trading more attractive to consumers. One obstacle that Goldman Sachs may encounter is finding quant funds that will begin business with them, not because of negative connotations but because quant funds are nervous about moving their existing business. They’re nervous because they may encounter problems such as computer glitches as well as any other operational problems. This will not be a huge problem for Goldman Sachs, as any quant fund would be lucky to link up with the such a respected banking company.

Goldman Sach’s AI Expansion Vision

Earlier in December 2016, Henry Terry, the Head of Internet Research, Goldman Sachs research, released a video, explaining in more detail the effects of AI on the business world and how Goldman is expanding AI development in its investment areas. He explains that Artifical Intelligence is growing at an exponential rate as a result of three factors:

  1. Massiv data proliferation, where Big Data continues to grow and is expected to grow at a 36% compound rate in the amount of data over the next five years.
  2. Growth in the speed of computing power has increased over the past decade.
  3. An increase in the development of open source algorithms, whereas programmers are able to build off past work to improve on a set of algorithms and not start from scratch.

As a result of these factors, there is has been a positive externality for consumers whereas he refers to it as a consumer base effect. The development in AI and Deep Learning has allowed consumers to be able to enjoy a wide range of new applications over the past decade such as Siri, Alexa, new automated traffic navigation; and even facebook tagging, which has its own machine learning capabilities.

The main areas that Goldman Sachs is investing to further develop and incorporate AI are in the Healthcare Sector and Retail Sector. In the Healthcare Sector, AI is being used to help better diagnose diseases more accurately and allowing drug developers the ability to develop systems that reduce operational costs. As the Retail Sector is moving away from the traditional brick and mortar establishment, retailers are using AI technology to better understand consumers’ needs and wants in order to better predict future trends.


Goldman Sachs will have no trouble gaining speed within the AI trading field. The company has been around for more than 100 years and isn’t going away anytime soon, the fact that they waited a few years to begin investing in AI doesn’t discredit their experience and it doesn’t mean they can’t match or surpass their new competition.

For more information on AI in the Financial Industry, click the links below:

AI Hedge Fund:  Hedge Funds With Machine Learning Capabilities

AI Hedge Fund:  Bridgewater Using AI to Increase Profits and Productivity

AI Hedge Fund:  Artificial Intelligence Taking over Hedge Fund Markets

Machine Learning Hedge Fund:  Artificial Intelligence, Algotrading and Hedge Funds

Arbitrage Trading:  How Hedge Funds Should Use AI Based Algorithms For Arbitrage Trading

Quant Hedge Fund:  Why Hedge Funds Should Adapt AI Technology To Continue