A recent study that brought together researchers and analysts from UK bank Standard Chartered and academic group the Universities Space Research Association has examined how quantum computing might be used to improve investment efficiency and results. The outcome was the belief that harnessing processing power that can solve problems up to 100 million times faster than conventional computers could give early adopters an edge when investing in financial markets.
Regular computers work on a binary ‘bit’ system, with information held on and computed through vast series of ‘1’ and ‘0’ bits. Quantum computers work on the basis of sub-atomic particles that exist ‘between states’, meaning that quantum bit, or ‘qubits’ as they are known, simultaneously exist as both ‘1’ and ‘0’ bits. This means their processing power is exponentially increased.
Maintaining large enough collections of qubits in their quantum state for long enough to enable a quantum computer to process data is a huge technological and physics challenge. While progress is being made, quantum computers can be considered to still be in their very early stages of development despite the very earliest experiments in quantum computing dating back to the 1980s. They are also hugely expensive at around $15 million a computer before the highly specialist maintenance required.
However, in recent years, significant progress has been made in developing working quantum computers. Scientists are succeeding in maintaining larger numbers of qubits for longer periods of time. Quantum computers have already been commercially applied to big data processing and analysis in relation to Deep Learning AI. Deep Learning can be applied to any big data-based analysis and major applications include medical research and the development of pharmaceuticals as well as in chemical engineering, space exploration and physics to name but a few. Basically, any application that involves spotting potential patterns and outcomes across huge volumes of data.
That makes financial markets an obvious application. Standard Chartered’s chief executive of financial markets, Alexei Kondratyev, believes that as quantum computing technology develops further it will disrupt many different markets including investment markets. Among the potential applications of quantum computers in investing is optimising portfolios by not only better balancing risk and reward potential but by being able to do so through a perfect combination of assets from the world’s financial markets.
A quantum computer would be able to analyse the hundreds of thousands, if not millions, of financial instruments available to an investor. This would include their entire history of fundamental data and reaction to different external triggers based on their current qualities. A perfect balance of these assets based on current conditions and adapted as they develop would be the expected result. The number of possible combinations of assets available to those investing online is truly mindboggling and in the giddy trillions. But future generations of quantum computers would be expected to be able to process the oceans of data quickly, producing an optimal portfolio.
The cost of quantum computers, and their relative instability at present, means that a quantum computing revolution in financial markets is still some way off. There are, however, already quantum specialists in the market, such as AQR Capital Management who are applying quantum computing to their investment decisions. It is thought that access to quantum computing power will at some point be available over the cloud far more cost effectively.
However, before those investing online in ISAs and SIPPs start to get too concerned their already uneven battle with institutional investors is about to get worse, it is unlikely that hedge funds and asset managers will all have developed quantum computing-based investment strategies any time soon. Also, there is the obvious problem of how anyone will win in financial markets if all the big investors are making perfectly optimal investment decisions. That would fundamentally go against how financial markets work, with winners and losers. Maybe a quantum computer can figure out what financial markets would look like if all big investors had perfect portfolios.