DIY Hedge Funds Unleash AI to Crack Wall Street’s Secret Code

**SPEAKER_1** (0:02)
Bloomberg Audio Studios, Podcasts, Radio, News.

**SPEAKER_2** (0:07)
You're listening to Bloomberg Businessweek with Carol Massar and Tim Stenovec on Bloomberg Radio.

**Carol Massar** (0:14)
It's one of the most read stories on the Bloomberg terminal. It's about how Gen.A.I. is transforming retail investing. It's enabling individual traders to build and execute institutional-grade quant strategies that have once been reserved for major Wall Street hedge funds. Bernard Goyder is one half of the duo behind this story. He's US options reporter for Bloomberg News. He joins us here in the Bloomberg Interactive Brokers Studio. Congratulations on the story.
I'm struck by all of the individuals you highlighted in the story because there's this pattern that has emerged. They were doing one thing before.

**SPEAKER_1** (0:47)
Yeah.

**Carol Massar** (0:47)
They quit that job to vibe code or create some sort of AI solution to trading that they think can get them a salary. How are they doing it?

**Bernard Goyder** (0:59)
Yeah. I think it's really indicative of that broader trend in retail investing we've seen since the pandemic with people, putting aside what they were doing before and jumping in and trying to make a living out of trading really. These are some of the more professional side of the retail investing world. I think we often like to characterize retail investors as having this really high risk appetite. But if you're doing this as a job, actually your risk appetite is going to be pretty low and reasonable. I think one of the guys said he put 5% of his portfolio into this kind of magic money machine that's trading for him. Somebody else was doing one trade a day on Robinhood, but it was an agent AI and he goes and does his day job in IT and lets this thing in the background, he'll get a notification on his phone sometime during the day being like your trade went through. That's just the way these people are doing it. I mean, there's another guy who's got a stop loss of 10%.
Once his position drops by more than 10%, that stop loss kicks in automatically. That's the same as if you were in a seat at a hedge fund. It's a similar kind of system. And I think what the AI has done is it's grabbed all of that information from all of the best practices across Wall Street and is now giving that to ordinary people.

**Tim Stenovec** (2:04)
So right. I think folks have always tried to kind of crack the code, right, of what goes on at some of these elite firms and these hedge funds.
But AI has given them a tool that's getting them closer to it.

**Bernard Goyder** (2:15)
It has, but bear in mind that this is giving people the same kind of tools that maybe Wall Street did eight years ago, which probably means that Wall Street is way, way, way further ahead of some of these people. But it definitely makes it more viable to try and execute trades automatically using AI. And more and more people seem to be taking that on. And Vlad, the CEO of Robinhood, posted that 100,000 people had plugged into their agentic AI system. They're one of the brokers that offers this.

**Carol Massar** (2:45)
The other brokers operate apart from Robinhood. You read about FUTU holdings, Moomoo, Public Holdings, all rolling this out. Are there notable holdouts of retail trading firms or firms that are popular with retail traders that are saying no to this tech as of now?

**Bernard Goyder** (3:02)
I wouldn't say, I think some firms are more cautious. So traditionally, Charles Schwab is generally on the more cautious end in terms of this stuff. They do have API technology. You can plug a system into Schwab. But in terms of enabling people to trade automatically through AI, I definitely point to them. And the big one is really the banks.
A lot of people will use the brokerage that their bank owns to trade through. And those really aren't offering that at this point. They're still pushing people towards more traditional wealth management services.

**Tim Stenovec** (3:34)
I mean, we always talk about financial disruption. We talk about fintech and all these different things. But I feel like, is this the thing that really disrupts kind of Wall Street and trading as we know it?

**Bernard Goyder** (3:47)
I think that's what some people in the industry would like to think. So, Anthony Denier, the Weeble president, was quoted in the story as saying, this is zero commission 2.0.

**Carol Massar** (3:57)
I thought that was a remarkable thing for him to say, because that changed retail trading.

**Bernard Goyder** (4:00)
It completely revolutionized it. So, there is a, I think you've got to kind of separate the people that are very much keen for just trading to happen. And Matt Levine makes this point in today's newsletter as well, in Money Stuff, that there's a lot of people who are incentivized just to have loads and loads of trading happening and they don't really care what happens to it.