How Quantum Computing Will Impact Finance

Quantum computing is a new type of computing that uses very small objects called “qubits” to handle information. Unlike normal computers, which use “bits” that are either 0 or 1, qubits can be both 0 and 1 at the same time. This strange behaviour comes from the rules of quantum physics. Even though this might sound confusing, the idea is quite simple: if a computer can hold more than one state at once, it might solve certain problems much faster than normal computers.

Recently, Google’s CEO, Sundar Pichai, talked about a new quantum chip named “Willow”. He said it could solve certain problems in just a few minutes—problems that would take today’s best supercomputers longer than the age of the universe to finish. This is a huge claim. It makes people wonder how soon we will see quantum computers doing real work, especially in areas like finance.

In this article, we will look at what quantum computing could mean for finance. We will talk about what kind of financial tasks might get easier, when we might see real commercial uses, and why we should still be careful before believing all the hype.

What Is Quantum Computing?

Right now, all our computers—from smartphones to supercomputers—work in a very similar way. They use bits that are either a 0 or a 1. This limits how fast and how well they can solve hard problems. If a problem is extremely complicated, even supercomputers might take ages.

Quantum computers use qubits. These special units can hold a mixture of states at once. This is called “superposition”. There is also something called “entanglement”, which links qubits together in very special ways. Because of these properties, quantum computers can, in theory, handle some types of problems much faster than normal computers. For instance, problems that involve looking at many different options at once, or problems where the best solution is hidden among a huge number of choices, could be solved more quickly on a quantum computer.

However, quantum computing is still very new. The machines need very cold temperatures to work. They also suffer from high error rates, where tiny changes in the environment mess up the calculations. These problems make it hard to build large, reliable quantum computers. Still, big companies like Google, IBM, and others are working hard to fix these issues. The recent announcement of Willow, Google’s new chip, suggests there has been progress.

Why Quantum Computing Matters for Finance

The world of finance involves a lot of complex tasks. Banks, investment firms, and other financial companies need to figure out the best way to manage risks, choose investments, and predict what will happen in the markets. Many of these tasks boil down to very difficult maths problems.

For example, consider portfolio optimisation. This is when a financial firm tries to choose a set of investments that will give a good return for a certain amount of risk. There are many possible sets of investments, and checking them all can be slow on normal computers. Quantum computers could, in theory, handle these problems faster. They could quickly sort through the different choices and help find better solutions.

Another area where quantum computing might help is in modelling financial markets. Markets are complex and can feel random. Quantum computers might allow us to explore more accurate models that look at many different factors at once. If done well, this could help traders and investors understand what might happen under many future scenarios.

Risk management, fraud detection, and secure communications are also important. Quantum computers might help improve the algorithms that detect unusual patterns in transactions (which could mean fraud). They might also help with cryptography—the art of keeping information secret. Today’s banking system depends on certain codes and keys. Once very large and stable quantum computers exist, some of today’s codes might be at risk. This means the financial industry must also think about new ways to stay safe in a “post-quantum” world.

When Will Commercial Uses Arrive?

Even though there is great excitement, quantum computing is still in its early days. Companies and governments have spent a lot of money—about $1.5 billion in equity funding across over 100 deals in 2023 alone—but large-scale, everyday use is still some way off.

Google has said they are working through a six-step roadmap to build a useful quantum computer. Right now, they have reached the second milestone. This suggests it could take many more years—perhaps a decade or more—before we see truly reliable machines that can beat normal computers in everyday financial tasks.

Quantum computers today are small and noisy. “Noisy” means they make many errors. To do something useful in finance, we need devices that can handle many qubits without too many errors. We also need better software tools, error correction methods, and ways to make sure the computer’s answers are correct.

Some experts say that we may see some specialised financial uses in the next five to ten years. These might not be full-scale quantum computers, but smaller ones that can help solve certain niche problems. For example, a bank might use a small quantum computer to test out a new trading strategy that normal computers handle more slowly. Over time, as quantum computers improve, we might see broader use cases appear.

What to Expect Along the Way

1. Small Steps First: Do not expect a sudden change. The path to quantum computing in finance will come bit by bit. At first, quantum computers might be used only in labs or special centres. Later, they might be offered as a service through the cloud, just like how you can rent time on a supercomputer today.

2. Hybrid Models: In the near future, we might see “hybrid” approaches. This means using quantum computers together with normal computers. The normal computer does most tasks, but offloads a tricky part of a problem to a quantum computer. This can help us gain benefits even before we have large quantum machines.

3. Post-Quantum Security: As quantum computing grows, the codes that keep our banking data safe might need to change. Today’s encryption methods could be broken by future quantum computers. This means financial firms and governments need to start switching to “post-quantum” cryptography. This will likely happen in the coming years, well before big quantum machines arrive, to ensure that data collected now cannot be cracked later.

4. Cost and Access: Building and running quantum computers will remain expensive for a long time. Large financial firms might be the first to use them, possibly by renting time on a quantum cloud service. Smaller firms might have to wait until prices come down and the technology improves.

5. Cautious Optimism: While quantum computing might help solve certain problems faster, it will not fix everything. Many financial tasks might not get any faster with quantum computing. Some problems may not be suited to quantum methods at all. So we should be careful not to hope for miracles. Instead, we should focus on where quantum can really make a difference.

The Long Road Ahead

Even though Google’s Willow chip is a big step forward, quantum computing will not replace normal computing soon. Think of it like the early days of classical computers, when a simple machine took up a whole room. It took decades for normal computers to become small, cheap, and reliable. Quantum computers might follow a similar path.

Over the next 10 to 20 years, we might see slow and steady progress. New chips will lower error rates. Better cooling and engineering will let us have more qubits. Improved algorithms will help us solve certain financial problems faster. As these things improve, quantum computing could become a key tool for big banks, hedge funds, insurance companies, and regulators.

For now, many of the claims—such as “solving a problem that would take a supercomputer longer than the age of the universe”—are test cases designed to show off what quantum computing might do. In real life, the problems might be different and not so easy to prove. Yet this does not mean the progress is not real. It just means we need to be patient and understand that quantum computing is a long-term effort.

Conclusion

Quantum computing could change the way we handle some of the most complicated tasks in finance. It might help us find better investments, manage risk more effectively, model markets more accurately, and secure our data against new threats. But these benefits will not arrive overnight. It will likely take many years, more research, and steady improvements in technology.

Right now, the announcement of Google’s Willow chip shows that big steps are being made. The rise in funding and interest also shows that people believe in the long-term potential. Over time, as quantum computers become more reliable, they may open doors to new financial tools and ways of thinking.

Still, we must stay realistic. Quantum computing will not replace normal computing any time soon. It will not solve all problems at once. But if we understand its limits and work on its strengths, it could become an important part of the financial world in the years ahead.