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I am waiting for one of these shops to open up the opportunity to hobbyists/devs. I would love to try and create my own decision/trade algorithms but dont have

I am waiting for one of these shops to open up the opportunity to hobbyists/devs. I would love to try and create my own decision/trade algorithms but dont have the kind of money it would take to mitigate the cost effect of the trade volume (ie, at $8 per trade and making 1000 trades per day with an average return of 2% per day you would need to be working with more than 400K to even cover your tx cost). Strikes me that it would be a great research incubator for them to understand/learn new ideas and techniques and hunt for talent.

bwhite 16y ago
There are plenty of prop shops that would let you trade with a very modest (low 5-figure or even 4-figure) dollar amount. Some will leverage your money, some will flat-out stake you in addition to your input. These places have the benefit of offering you relatively low costs -- minuscule compared to the cost of a retail trade at your average discount broker -- but they do not necessarily have the sort of investment in supercharged hardware. It is a good thing that your actual trading costs are not anywhere near those at the retail brokers you have in mind. 2%/day is an outrageously huge return. $1,000 at 2% compounded 250 times (approximate number of trading days in a earth year) is over $140k; you would return 14,000% annually. The bottom line is that it is harder than it looks.
- keithwarren 16y ago
  If there are plenty, could you please point one out?
  - bwhite 16y ago
    Start at: http://www.traderslog.com/proprietarytradingfirms/ http://www.traderslog.com/proprietarytradingfirms/ Some of these are purely manual trading but many have software APIs.
roel_v 16y ago
Set it up, trade 'virtually' (i.e., just simulate), prove your algos, get bankrolled by someone who is convinced of the algos worth. Quite straightforward. I'm highly skeptical of a hobbyist beating the competition though (maybe in micro niches, where one would add domain specific knowledge to get an edge - that's my pet idea on this topic :) )
- bwhite 16y ago
  It is straightforward, but impractical. Getting good historical market data is very, very expensive. Even recording current market data is not cheap and not without significant difficulty.
  - roel_v 16y ago
    True, but it's not impossible to get data sets to work from - on all quant forums the question comes up at least daily and the answers are always the same.
  - dtby 16y ago
    Why would one even consider entering these markets without the ability to demonstrate alpha over historical results? Yes, your alpha needs to include the ability to beat transaction costs... so if you can't pay for the [relatively exceptionally cheap] cost of several years of your chosen market's historical data, maybe you're not really serious. It's fun to play at being a financier, but let's not pretend that access to market data is the significant barrier to entry which is preventing disruption in the world financial markets.
    - bwhite 16y ago
      The cost of market data and a system equipped to process it are not inconsiderable. Historical tick data (quotes and trades) for US equities will run you $20k/year, minimum. US equities runs about 30-40GB/day so you are looking at almost 10TB/year. You need to be able to access the data quickly so you probably don't want to compress it and probably do want to duplicate the data, slicing and dicing it in different ways. Call it 20TB, minimum, per year of data. Futures and options data will run another $20k/year, each, and futures has about as much data as equities and options has an order of magnitude more. That is another 100TB/year, minimum, per year, probably closer to 200TB. How are going to to study these data? Even if you were able to operate at disk speed (which seems unlikely unless you have lots of disks and have duplicated and distributed your data amongst them) it would take you five minutes to run against one day's worth of data, or close to a day to run a year's simulation. If you consider more than a few cores in parallel, reading from disk is going to be seriously hampered. None of this even considers the cost of the software necessary to support this effort: contending with corporate actions, tracking halts, etc. This all adds up to a significant financial hurdle.
akronim 16y ago
$8/trade is high, Interactive Brokers for example are $0.005/share, $1 minimum.

bwhite 16y ago

There are plenty of prop shops that would let you trade with a very modest (low 5-figure or even 4-figure) dollar amount. Some will leverage your money, some will flat-out stake you in addition to your input. These places have the benefit of offering you relatively low costs -- minuscule compared to the cost of a retail trade at your average discount broker -- but they do not necessarily have the sort of investment in supercharged hardware. It is a good thing that your actual trading costs are not anywhere near those at the retail brokers you have in mind. 2%/day is an outrageously huge return. $1,000 at 2% compounded 250 times (approximate number of trading days in a earth year) is over $140k; you would return 14,000% annually. The bottom line is that it is harder than it looks.

keithwarren 16y ago
If there are plenty, could you please point one out?
- bwhite 16y ago
  Start at: http://www.traderslog.com/proprietarytradingfirms/ http://www.traderslog.com/proprietarytradingfirms/ Some of these are purely manual trading but many have software APIs.

roel_v 16y ago

Set it up, trade 'virtually' (i.e., just simulate), prove your algos, get bankrolled by someone who is convinced of the algos worth. Quite straightforward. I'm highly skeptical of a hobbyist beating the competition though (maybe in micro niches, where one would add domain specific knowledge to get an edge - that's my pet idea on this topic :) )

bwhite 16y ago
It is straightforward, but impractical. Getting good historical market data is very, very expensive. Even recording current market data is not cheap and not without significant difficulty.
- roel_v 16y ago
  True, but it's not impossible to get data sets to work from - on all quant forums the question comes up at least daily and the answers are always the same.
- dtby 16y ago
  Why would one even consider entering these markets without the ability to demonstrate alpha over historical results? Yes, your alpha needs to include the ability to beat transaction costs... so if you can't pay for the [relatively exceptionally cheap] cost of several years of your chosen market's historical data, maybe you're not really serious. It's fun to play at being a financier, but let's not pretend that access to market data is the significant barrier to entry which is preventing disruption in the world financial markets.
  - bwhite 16y ago
    The cost of market data and a system equipped to process it are not inconsiderable. Historical tick data (quotes and trades) for US equities will run you $20k/year, minimum. US equities runs about 30-40GB/day so you are looking at almost 10TB/year. You need to be able to access the data quickly so you probably don't want to compress it and probably do want to duplicate the data, slicing and dicing it in different ways. Call it 20TB, minimum, per year of data. Futures and options data will run another $20k/year, each, and futures has about as much data as equities and options has an order of magnitude more. That is another 100TB/year, minimum, per year, probably closer to 200TB. How are going to to study these data? Even if you were able to operate at disk speed (which seems unlikely unless you have lots of disks and have duplicated and distributed your data amongst them) it would take you five minutes to run against one day's worth of data, or close to a day to run a year's simulation. If you consider more than a few cores in parallel, reading from disk is going to be seriously hampered. None of this even considers the cost of the software necessary to support this effort: contending with corporate actions, tracking halts, etc. This all adds up to a significant financial hurdle.

akronim 16y ago

$8/trade is high, Interactive Brokers for example are $0.005/share, $1 minimum.