Irene Aldridge joins us to discuss how Big Data can have an impact on the market stability and trader profitability.
Irene Aldridge is a co-author of “Big Data Science in Finance” (with Marco Avellaneda, Wiley 2020), an internationally-recognized quantitative and Big Data Finance researcher, Adjunct Professor at Cornell University and President and Managing Director, Research, of AbleMarkets, a Big Data for Capital Markets company. She was named to the Forbes’ Top 40-Over-40 Women’s List in 2017. Prior to AbleMarkets, Aldridge designed and ran high-frequency trading strategies in a $20-million cross-asset portfolio. Still previously, Aldridge was, in reverse order, a quant on a trading floor; in charge of risk quantification of commercial loans; Basel regulation team lead; technology equities researcher; lead systems architect on large integration projects, including web security and trading floor globalization. Aldridge started her career as software engineer in financial services.
Aldridge holds a BE in Electrical Engineering from Cooper Union, and MS in Financial Engineering from Columbia University, and an MBA from INSEAD. In addition, Aldridge studied in two PhD programs: Operations Research at Columbia University (ABD) and Finance (ABD). Aldridge is the author of multiple academic papers and several books. Most notable titles include “Big Data Science in Finance” (co-authored with Marco Avellaneda, Wiley, 2020), “Real-Time Risk: What Investors Should Know About Fintech, High-Frequency Trading, Flash Crashes” (co-authored with Steve Krawciw, Wiley, 2017), “High-Frequency Trading: A Practical Guide to Algorithmic Strategies and Trading Systems” (2nd edition, translated into Chinese, Wiley 2013), and “The Quant Investor’s Almanac 2011: A Road Map to Investing” (Wiley, 2010). Her recent academic publications include “Neural Networks in Finance: Design and Performance” (with Marco Avellaneda in the Journal of Financial Data Science, 2019), “Big Data in Portfolio Management” (Journal of Financial Data Science, 2019), “ETFs, High-Frequency Trading and Flash Crashes” (Journal of Portfolio Management, 2016), and “High-Frequency Runs and Flash Crash Predictability” (Journal of Portfolio Management, 2014). Aldridge presently serves on the Editorial Advisory Board for the Journal of Applied Data Science to Finance.
*Disclaimer. None of this information is financial advice.
The following transcript was created using artificial intelligence. There will be some grammatical errors below.
00:00:04:00 – 00:00:19:23
Richard Carthon: Hello, everyone. Welcome to another episode of Crypto Current, your host here, Richard Carthon, and today I got a really special guest that has been doing amazing things in the financial realm for a long time, working on all kinds of amazing projects. Here to talk to us more about Able Markets, we have Irene Aldridge. How are you doing today?
00:00:20:20 – 00:01:49:05
Irene Aldridge: Hi, Richard. I am thrilled to be here. I think it’s so cool to be on a Crypto podcast because this is a super new area, for me anyway and I think for a lot of other people, too. Obviously, you’ve been in this for a while and so have a lot of other Crypto guys. It’s amazing to see how Crypto is coming of age. And in fact, JP Morgan announced today that they completed a trade, I think, in repo securities in Crypto in their own coin system, which is like a major breakthrough for a traditional way to bank to adopt Crypto to the point where they’re actually trading it. I know that there are also a lot of people still on the fence that are coming from traditional asset management because they’re really afraid of a lot of fluctuations and they just don’t necessarily understand what’s going on. And frankly, like in the case in the past, there’ve been a lot of issues with Crypto being used for money laundering or whatever. So, I think there’s a lot of negativity still that Crypto has to overcome, but the prospects are really great. Man, with big banks really going into it, I think there’s just no turning back. I think it’s going to be an asset class that is at least as important as everything out there. And I think for that reason, if you have not been doing Crypto yet, of course you have. But, you know, you really should.
00:01:52:15 – 00:03:24:19
Irene Aldridge: Coming from my background, as you mentioned, I’ve been around for a long time, and part of it is just natural curiosity. I was always interested in following what’s new and exciting in the world. And part of it there’s also the industry has been changing a lot. My background is very, very technical and I’m an electrical engineer by training. And in the beginning, probably when I started, a lot of the finance was more qualitative. So, there was obviously to me, always potential to do more math and everything, but a lot of people saw math not necessarily important in that space because a lot of transactions were done more as a service. So, people with the range of customs security or custom this or custom payout and then they would charge a hefty haircut for that and they would make a lot of money on just doing something custom that did not necessarily require anything mathematical. But as the markets have been standardizing continuously with the help of technology over the last 20 years, we have more and more regularization in everything we do. Custom has been kind of going away or at least not in everything, but there is a lot more standardized stuff that people are trading.
00:03:25:03 – 00:03:47:05
Richard Carthon: Yeah. Real quick on that, I just want to dive into a little bit more on your background and thank you for opening up with that. I kind of want to unpack a couple of things, so first, let’s go back to your background. You said you were an electrical engineer and you kind of shifted into the financial world, can you kind of talk to us about that journey? Like, how did you start to go in the path of the financial realm?
00:03:49:08 – 00:05:14:18
Irene Aldridge: Well in New York, you just can’t avoid it you know. So, I was going to college in New York and I was a poor student. And you know, you walk down the street and you see all this amazing capacity that people have and they all work in finance and it’s just so exciting. You just breathe it in and it kind of becomes part of who you are. At the same time, I mean, my technology background has always been very, very strong. It’s just that in New York, you just fall into it you know. It’s like you kind of, all the jobs that are offered to you, probably 75 percent of them have some financial focus. You really can’t get a true electrical engineering job in New York City, even if you try to, right? So, but now it’s also different because there are social media companies that are there and so they’re recruiting heavily, previously it’s just all been finance. It’s really kind of the dominant industry. I think today it’s still a very dominant industry, and of course, it’s very rewarding, right? And in terms of financially, if you are doing well in finance, you’re probably doing very, very well for yourself.
00:05:15:01 – 00:06:16:06
Irene Aldridge: So, from that perspective, so after electrical engineering, I immediately went to study financial engineering. I went to Columbia. At that time, the programs were just beginning and it was kind of very interesting, very different from the field. I went to do a PhD in the same, in financial engineering. A PhD was not really well defined in that space yet, it was still more operations research, transportation problems and supply chain management, which was not, I really couldn’t see how it would apply to finance. So, I went to do an MBA. I took the year off, it was all I was allowed to take. And I went to NCI in France, which is a one program, and there I really got exposed to like, traditional kind of MBA finance. So, I switched and I went to do a PhD in finance instead. Throughout this time, probably with the exception of my MBA, I worked full time.
00:06:16:25 – 00:07:44:08
Irene Aldridge: And I enjoy working, I’m a complete workaholic. I can work 24/7. So, and that’s what I do basically all the time, but finance PhD, it was very interesting because a lot of the problems that finance basically solves are really kind of micro level. So, for example, a question. Okay, so if somebody releases earnings like COs release earnings, do they manipulate the earnings or not? So, it’s a small aspect of everything that’s going on. And I’m always kind of more interested in the big picture. Although this is very interesting and there’s also like, different risk management problems that you know, I leverage and do a lot of risk management work that I’ve done over my career. And I ran a long quantification desk for a bank and also made it to the trading floor. So, I went to research and basically every possible department. And it’s interesting that my key takeaway though, from the whole finance PhD and I was really interested, like, how do you make money in finance?
00:07:44:22 – 00:07:45:07
Richard Carthon: Right.
00:07:45:09 – 00:07:56:05
Irene Aldridge: This was my main interest in doing this PhD. We get bogged down in these, well, does it manipulate the earnings or could it be nothing?
00:07:56:07 – 00:07:56:22
Richard Carthon: Right.
00:07:56:24 – 00:09:28:04
Irene Aldridge: Just tell me, how do you make money? My key takeaway is basically to have money, that’s what I wanted to figure out, is you have to make more money and spend less money. But in the process, you can do a lot of math and obviously price things more precisely and stuff like that, which is very useful if you’re doing any kind of arbitrage, which you’re basically doing all the time in financial services. I think another interesting thing about finance is that standardization that’s happening and is going to continue happening is it allows us to price stuff more precisely. In other industries, like if you look at groceries, like, the example I like is you walk into a grocery store and you have like 20 different brands of tomato soup, right? And they’re all priced differently, so, some are priced $10 a can and some are like 60 cents a can. And all the guys who are pricing it to $10 a can, they’re making the argument that they’re soup is better, right? So, they’re appealing to the fact that, Look, I’m actually pricing this law because my soup is just so much more important. In finance, all the soup is basically very transparent and very much the same by now because of regulations, because regulation’s mandated. I think even more so in Crypto, because in Crypto, you have this ginormous paper trail and you can go back and basically verify all the different transactions.
00:09:29:03 – 00:10:12:21
Richard Carthon: Real quick on that, as we’re kind of like going down that train of thought. One of the ways that I, you know, that you’ve probably got into creating Able Markets and as you’re starting to look at all the various ways and kind of the discrepancies that you can find, as you were saying with one of the things that I think is always really important is to try to find Alpha, especially as a trader. And also to try to find some ways, just like you say with arbitrage, there’s been a lot of opportunities for arbitrage through the various trading platforms in the Crypto markets and other things like that. But how did you get to a point where you decided, Okay, I want to go and create this platform, Able Markets, that can help a lot of traders find some of these opportunities and start to capitalize on them, like you said, to make money?
00:10:13:20 – 00:11:54:06
Irene Aldridge: We were totally demand driven, so, we didn’t like consciously set out to create the platform. Before a client of ours, like, we had a trading company and the client of ours, there was a crisis in 2009, so, they came to us and I said, “Listen, we don’t want to give you money to invest because we think it’s too risky, but we’re just going to buy your data and we’re going to invest it in ourselves.” It was a five, you know, you will pay us, it’s great, basically evolved from there. So, you know, once you find one find in something, then you find the next find who’s kind of with the same interest and you grow kind of organically that way. There’s not really, that’s basically it, but I think the problem is universal, you know. So, you have, you want to make money in financial markets, as you said, you want to identify Alpha, which is your source of uncorrelated returns, right? So, it’s basically the extra return that you would get on top of like traditional stuff, payment for unit risk, right? So, that’s beta, right? So, when you take extra risk and then you are rewarded with a certain return, that’s your beta. Alpha is something that’s uncorrelated with anything that you know, so, it’s kind of an extra bonus and that’s what’s really hard to find. And I think in Crypto, there’s plenty of that left still, because the technology is so new. And frankly, there’s a lot of stuff still to explore.
00:11:54:08 – 00:12:49:04
Irene Aldridge: I think there are a lot of inefficiencies that people have not even thought about yet that are completely legit. It’s just whether they’re in microstructure, which means the study of the like, every tiny movement in the market, which I’ve done quite a bit, which is very interesting I think. Or it’s really the way, as you said, different platforms are working and there’s discrepancies between those that actually generate some mispricing. It’s also possible. But I think the answer to how you would best weigh to identify all this will lie or does lie in technology. Part of it is we live in this new world where there’s so much data, like you have the Crypto. How many platforms are there now that actually offer Crypto or trade Crypto?
00:12:50:06 – 00:12:55:15
Richard Carthon: A lot. There’s plenty of platforms you can go and get from all over the world.
00:12:55:17 – 00:14:07:05
Irene Aldridge: Right. So, you know, so each of these platforms is a little bit different. There’s just so much information that they’re providing to everybody. And it used to be that financial analysts really only had to deal with it like a very small time series because, I’m going way back when to the like, maybe 50 years ago, you had all the quotes that were in the newspaper, right? So, you would subscribe to The Wall Street Journal because they have these massive tables where all the securities were listed and you would have open, high, low, close and volume for each stock. And that’s on a daily basis and it’s all people have. People didn’t even record intraday data because they thought it was a complete waste of storage space and frankly, it was too expensive to store all that data. So right now, we have much less expensive storage where we can store all this data, we have much less expensive technology, which we can process all this data. So, there’s really a lot of opportunity and managing the data effectively and producing a lot of money that people previously left on the table because they just didn’t know what to do about it.
00:14:07:26 – 00:15:10:09
Richard Carthon: So on that, you bring up a lot of really good points on the fact that from an institutional standpoint or even from your traditional finance world, you’re starting to see a lot of traditional money starting to pour in and institutional money pour into the Crypto markets, just like you said. We had Paypal that recently announced they’re largely coming in, you have a ton of portfolios. I believe we had an insurance company that allocated recently like $100,000,000 towards Bitcoin and are planning on adding more in the future. And more and more and more of this money started to pour into it. As of today of this recording, Bitcoin has broken its all time high of over 20,000. Who knows where it’s going to be by the time this comes out and you’re listening to this, but it seems that Crypto is becoming more and more legitimized. Where do you see Crypto headed as institutional players are starting to look at this, some of these different strategies that you just talked about, like what are all of the different ways that Crypto can continue to evolve from a financial standpoint?
00:15:11:14 – 00:15:15:27
Irene Aldridge: Well, this is just my perspective, so, I’m not sure.
00:15:15:29 – 00:15:19:09
Richard Carthon: Yeah, no financial advice, no worry about that. Yep, we’re all good on that, this is not financial advice.
00:15:21:11 – 00:16:48:21
Irene Aldridge: So, yes, I think it’s definitely becoming a legitimate asset class in terms of going forward with equities and everything else. In fact, there may be some synergies between equities and Crypto. It’s possible. I mean, I know there are some problems with trading equities on Blockchain, for example, because how do you short a stock? Like how do you sell a stock and then how you charge interest for it? But maybe people are able to resolve it. So, or maybe they have resolved it already. So, but I think Crypto has a great potential and Blockchain is definitely very legitimate and it has been very solid. But Crypto is an asset class. I think it’s really becoming more of a thing. So, maybe in 10 years, probably not five years, but in 10 years, we’ll probably pay with Crypto at the grocery store, at the local grocery store, you know. And maybe that’ll be our world currency and it’s basically what we’ll use, right? Just like any other currency that we use today. But I think the key to success in really investing Crypto lies with big data. And if I may plug my new book.
00:16:48:23 – 00:16:49:11
Richard Carthon: For sure.
00:16:49:13 – 00:18:08:20
Irene Aldridge: Co-authored, it’s called Big Data Science in Finance. It’s co-authored with Professor Marco Avellaneda. And in it we have Crypto applications specifically, which are built on daily Crypto data. But you can see just how much you can do with applying big data techniques to even the Crypto market and how much you can improve the performance in your portfolio by managing data more effectively. And I think as more and more portfolio managers adopt these big data techniques, they’ll be able to run more successfully, manage the risks of Crypto. And right now, you have sometimes these wild oscillations that scare a lot of people away, but it doesn’t have to be like that, right? So, you can actually manage it more effectively and achieve a pretty smooth return, also without sacrificing the upside and even improve the upside in many cases. I think it’s really becoming, possibly will become the standard and I can totally see that happening.
00:18:08:22 – 00:18:09:07
Richard Carthon: Yeah.
00:18:09:09 – 00:18:11:08
Irene Aldridge: Go ahead, sorry.
00:18:11:10 – 00:18:47:25
Richard Carthon: No, I was just going to say on that, like, what I think is more and more interesting is in the last three years or so, you saw a lot of these hedge fund managers and prolific people in the space specifically speaking Warren Buffett, who basically said there’s no value in Crypto and also that kind of stuff. And we’re starting to see a shift kind of in the other direction. Do you think that it’s a more viable option or will continue to be? Do you still think it’s highly speculative? Like, where do you think the world is going as far as being able to treat this as a viable option versus continue to be highly speculative?
00:18:48:18 – 00:19:12:28
Irene Aldridge: Yeah, I think it is definitely a viable option. And I think J.P. Morgan is, well, J.P. Morgan is also a leader in innovation and they like to try all the new technologies, but they’re also very risk averse. And besides, the CEO of JP Morgan is big friends with Warren Buffett. Alright so, I can see Warren Buffett changing his mind pretty soon. And a lot of people change their minds.
00:19:13:00 – 00:19:13:16
Richard Carthon: Yeah.
00:19:13:18 – 00:19:54:08
Irene Aldridge: It always happens. So, I think we’re at a kind of an inflection point in Crypto where it’s really to the point where people reassess their previous opinions and I mean, their opinions largely were based on 2018 where the market just tanked, Crypto market tanked. Part of the reason why I think the Crypto market tanked was I mean, a lot of people, Crypto is kind of a wild west, right? Sort of the currency that’s not really regulated right now, although none of the currencies are really regulated, right?
00:19:54:10 – 00:19:54:25
Richard Carthon: Yeah.
00:19:54:27 – 00:20:23:24
Irene Aldridge: So, if you look at any other world currencies, they’re fairly regularly debated. So, but Crypto is even like it’s faster and it’s just very, very new. And you can say that like, or if you look at countries like Venezuela, apparently a lot of people in Venezuela use Crypto because they can’t really get access to the U.S. dollars or they can’t pull money out of the country otherwise, right?
00:20:23:26 – 00:20:24:11
Richard Carthon: Right.
00:20:24:13 – 00:21:14:09
Irene Aldridge: So, there’s a lot of that going on. But at the same time I think, so anyway, so, in 2018, there was this crash, which definitely scared a lot of people away. But now it’s coming back and it’s coming back full force. And of course, my point is I think over the last two years, people have had a lot of time to think about how they would mitigate the risk if the crash were again to occur. And what you had in 2017, for example, you had these like massive conferences of people who just had a little bit of money saved and they would go to these Crypto conferences and they would just pour all their money into Crypto, right? And without any background on what was going on.
00:21:14:17 – 00:21:55:03
Irene Aldridge: So, it’s not that different from the 1920s in the equities market like a hundred years ago. But there were a lot of widows and orphans who saved a little bit of money and then they just saw the stock market, it was very new at the time, just going up and up and up. Then the market crashed and they lost everything, right? And then we had the Security and Exchange Commission created to protect widows and orphans and etc. So, I think a lot of people got burned in this Crypto business too. I personally know people who also got burned, but in a different way. They invested into Crypto and then they had this Bitcoin and Bitcoin and Bitcoin and all of a sudden they had no Bitcoin and they could never figure out what happened to their Bitcoin, right? So, it just left.
00:21:55:05 – 00:21:55:20
Richard Carthon: Right.
00:21:55:22 – 00:22:40:22
Irene Aldridge: All of these stories, they kind of give people pause and they just think, Well, you know, maybe it’s not the right time yet. But if the company like the brand, like JP Morgan goes behind it and said, Look, this is our product, this is our whatever, JP coin, whatever they call it, maybe it’s worth our money because, you know, if anything, we can sue JPMorgan and get our money back. I think it’s exciting, I think it’s truly an exciting time. And I think this time it’s definitely, we’re making real progress towards more institutionalized Bitcoin than ever before.
00:22:41:11 – 00:23:45:22
Richard Carthon: I agree. I think there’s a lot of reasons why the difference of what happened in the last crash versus now, while there’s a lot more stabilization, there’s a lot more proof in the pudding, right? So, like from the ebbs and flows, it’s been, it’s proven the test of time. You’re seeing a lot of other Cryptos outside of just Bitcoin as well who are building projects and are showing their use cases for real world use cases. And you’re also starting to see projects that are trying to materially improve upon the world that’s borderless. Like the fact that everything is so borderless in Crypto makes it a lot more appealing and makes it to where, just like you said, you can move faster, you can get things done. Where in the world can you go where your dollar is a dollar? But a Bitcoin is a Bitcoin wherever you go and Ethereum is Ethereum wherever you go. And that’s powerful and that’s why you’re also starting to see a lot of governments create CBDCs, which are basically centralized banking, digital currencies.
00:23:45:28 – 00:23:46:13
Irene Aldridge: Yeah.
00:23:46:15 – 00:23:58:19
Richard Carthon: And so, I think that trend potentially will continue. But I do want to say I really do appreciate you spending some time with us today and sharing some of the knowledge that you have. But what is the final thought that you want to leave with all of our listeners here today?
00:23:59:23 – 00:25:08:20
Irene Aldridge: Well, my final thought is always about how you can apply the latest technology to any human problem. And right now, I’m obsessed with big data. I’m absolutely obsessed with it and I think we’re just scratching the surface of how much you can do with data and like with Crypto. I think there’s just so much enormous potential in that world and I think very little of it has been done yet. And part of it is because like traditional institutions, academic institutions, they have not yet embraced, they have not yet realized, for example, that Crypto is here and now and you really have to devote like PhD kind of studies towards Crypto. So, there’s not enough research. Wait, a little research, but I think the potential is insane. And I’m very interested in studying it and that’s why we wrote the book. But I hope it’s really continuous and we should see the fruit variation.
00:25:09:13 – 00:25:19:01
Richard Carthon: No doubt, really do appreciate that. What are some ways that people can connect with you and learn more about Able Markets and also learn about your book that you just released?
00:25:19:21 – 00:25:43:27
Irene Aldridge: Sure. I’m on Twitter, it’s Irene Aldridge, one word and I’m also on LinkedIn. And our book is going to have its own website. It is BigDataScienceinFinance.com. And it’s also on Amazon, it’s supposed to be shipping later this month. I’m very excited about it.
00:25:44:18 – 00:25:50:23
Richard Carthon: Awesome. Well again Irene, really appreciate you spending some time with us today. And for everyone listening, Stay Crypto Current.
Crypto Current will be guiding all of you who are new to the cryptocurrency world to becoming a cryptocurrency and blockchain expert. Crypto Current was founded to give access to information to everyone on current events occurring in cryptocurrency and blockchain in a digestible way. Since its creation, we have created content that impacted thousands of people through its podcast, blog, and social media.