Trade through to a quantum-driven financial services industry

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Quantum computing is no longer a theoretical miracle, but a commercial reality. And industries are exploring how to incorporate quantum computing into their workflow for the financial services sector, especially those companies dealing with market risk and uncertainty.

From the first transatlantic telegraph cables in the 19th century to the development of the Internet and big data analytics, the financial services industry has adopted emerging technologies to solve problems and drive business success. Quantum computing has the potential to influence this sector even more.

The technology differs fundamentally from classic computing. Based on the laws of quantum mechanics, quantum computing can solve certain problems that are known to be persistent on classical computers of any size. And while widespread commercial applications are still a few years away, it is predicted that within three to five years, quantum computers will produce breakthrough products and services for specific scientific or business problems.

IBM introduced the world’s first quantum computing service in the cloud, giving everyone access to its cutting-edge technology. Photo: ODD ANDERSEN / AFP / Getty Images

time is money

The old adage “time is money” is particularly true of the financial services sector, which often measures success in fractions of a second. The potential performance of quantum computing is particularly beneficial in three specific areas: targeting and forecasting, trading optimization, and risk profiling.

From identifying new business opportunities to detecting fraud, the data modeling capabilities of quantum computers can help find patterns, perform classifications, and make better predictions. The technology could also help reduce the complexity of trading today Environments. Combinatorial optimization could allow investment managers to improve portfolio diversification and realign portfolio investments to more accurately respond to market conditions and investor objectives.

Researchers are already investigating the problems of how quantum computers can help with small risk analyzes or option pricing problems. This is now being expanded to include larger, more realistic ones Applications further investigate the potential and required quantum resources.

There are endless ways to study how quantum technology could help tackle the intricacies of today’s trading environments, and to accelerate that discovery it takes a C-suite knowledgeable enough to create a strategic quantum roadmap. Senior management should also appoint quantum champions to drive change and explain the technology to customers and investors.

It also takes a combination of qualified, creative and results-oriented specialists who can program and use quantum computers, and employees with extensive industry knowledge who want to acquire quantum computing skills.

It is important to make connections with the established quantum computing ecosystems, including recognized technology companies, startups, academic partners and national research laboratories. This gives companies access to high-quality quantum computing software and hardware as well as insights into the latest developments in technology.

Finally, to understand the potential of quantum, it is critical that an institution’s core quantum experts begin developing and testing quantum algorithms as soon as possible to assess their benefits and how they will affect business operations can affect the results.

Quick wins for early adopters

More and more organizations are now jumping on the quantum train. Several high profile institutions have recently invested resources in scaling quantum computing for the financial sector. These include JP Morgan Chase, Barclays, and Goldman Sachs. They are all exploring potential applications ranging from derivative pricing to portfolio optimization and transaction processing. For example, the Goldman Sachs quantum research team provides detailed initial estimates of the quantum computing resources required to achieve a quantum advantage in derivative pricing.

Quantum computing should begin to transform the financial services landscape in the next few years. However, it is now necessary to develop a strategy that takes into account not only the business opportunities and the skills and infrastructures required to achieve them, but also potential risks. Organizations need a quantum-proof approach to cybersecurity to protect themselves from the encryption capabilities of the technology. This is already possible today, for example through the use of grid-based cryptography, but the integration of new crypto-schemes into an organization is a time-consuming effort.

In order to bring all of these elements together safely and effectively, it is important to choose a technology partner who is demonstrably able to support the introduction of quantum workflows.

Financial institutions that adopt quantum early can leverage huge competitive advantages, including the potential to overtake competitors and become market leaders.

(Stefan Wörner is Head of Quantum Applications Research & Software at IBM Quantum)

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