Financial Systems Engineering

1/ Most people think finance is about markets. Increasingly, finance is becoming infrastructure. That changes the engineering problem entirely. A thread 🧵

Finance today depends on software. Software depends on infrastructure. Infrastructure depends on architecture. Yet we still teach finance largely through economics, mathematical models, and financial instruments. If modern finance is becoming critical digital infrastructure... Which discipline should be responsible for engineering it? Financial Engineering? Software Engineering? Systems Engineering? Something entirely new? Curious how practitioners across finance, technology, and regulation think about this.

Edge compounds only after trust removes discretion; until then, your biggest source of alpha is often your biggest source of variance.

@GoshawkTrades The missing layer is execution. A strategy can be statistically sound yet fail if fills; latency, slippage, or liquidity assumptions differ from the backtest. Trust compounds only when both the signal and the market plumbing behave as expected.

good systems compound in trading. backtest a strategy properly. trust the results enough to go live. follow every signal because you trust the process. consistent execution compounds returns. returns give you capital to add a second strategy. two uncorrelated strategies smooth your equity curve. smoother curve means less panic. less panicking means you never override the system. the first strategy you trust completely is the hardest. everything after that compounds.

@quantbeckman The key implication for financial modeling is identifiability. If multiple latent state configurations produce the same observed prices, calibration alone cannot recover the true market state. You need structural constraints or additional data beyond price history.

Not all variables belong to the same category. Indeed, multiple distinct configurations of latent states can generate the exact same likelihood for the observed price series.

15/ This is the first article in a larger project to build the Financial Systems Engineering Body of Knowledge (FSE-BoK). If finance is becoming infrastructure... We need to start thinking like infrastructure engineers.

14/ That's the motivation behind an emerging idea: Financial Systems Engineering. Not a replacement for finance. An integration of finance, systems engineering, software engineering, AI, distributed systems, cybersecurity, and market infrastructure.

1/ Most people think finance is about markets. Increasingly, finance is becoming infrastructure. That changes the engineering problem entirely. A thread 🧵