3 ms·

> On the other hand, you know that millions of other incredibly talented and skilled people are also working on the same problem, and no one has really had much

by Closi 6y ago

> On the other hand, you know that millions of other incredibly talented and skilled people are also working on the same problem, and no one has really had much success such as to be notable. There have definitely been successes in this space, but they are always closed source within hedge funds and don’t usually offer up their algorithm for other people to use. Even internally in hedge funds they won’t share their algo trading strategies they have found, because if someone goes to another firm and replicates them then the advantage is lost. Usually these are based on understanding a specific signal that you can estimate a sectors value from. As soon as others can use the algorithm any ability it has to beat the market is instantly lost.

dTal 6y ago
>As soon as others can use the algorithm any ability it has to beat the market is instantly lost. Head scratcher - why would anyone else use it then?
- singhrac 6y ago
  It’s not as instant as the commentator makes it out to be, or as decisive. You have weights of X and they have weights of Y. The capacity for the algorithm is $2mm of risk but you can only deploy 200k right now because your fund is smaller, etc.
- Closi 6y ago
  To be honest it's not instant as everything has time lags and I'm assuming new strategies are very quickly incorporated into the market price, but if you have a market-beating algorithm and others start using it, that reduces the returns you generate potentially down to zero (depending on how efficient you think the market is). The idea of an algorithm is that effectively you are wanting to work out the market value (or potential future value) of stocks/commodities to calculate if they are underpriced, i.e. you think a stock valued at £0.90 is actually worth £0.95, you buy them at £0.90 and hope to profit when people realise it is worth more. This gap between what you calculate, and the current market price, is the room you have to profit. If others in the market start to use the same calculations as you, everyone will benefit from a more 'accurate' view of the underlying value of the asset, and this will change the market price. If you can't be the first-mover on this anymore you have lost your advantage. Because of this, automated trading bots that actually work (which tend to be highly domain-specific, e.g. a bot that just estimates oil futures based on satellite imagery) tend to be sold to hedge/quant funds who can exploit the information asymmetry without disclosing the trading strategy.
  - nexuist 6y ago
    > a bot that just estimates oil futures based on satellite imagery Are there any resources containing lists of software projects or companies that do work like this? This and using satellite imagery to identify car models so you can estimate the average income of an area from its parking lots seem so fascinating to me. I imagine there's probably millions of unrelated, free data sources out there that could be linked together into something useful for market trading.
    - Closi 6y ago
      A few links you might find interesting: https://www.bloomberg.com/news/articles/2017-12-16/satellites-are-reshaping-how-traders-track-earthly-commodities https://www.bloomberg.com/news/articles/2017-12-16/satellite... https://alternativedata.org/ https://alternativedata.org/ Although some novel strategies will be based on using publicly available data sources, a lot of it is often working out how to extract new data to create a private data source which has information others can’t access. Examples of funds would be Renaissance Technologies and Two Sigma. It’s worth noting that these funds have really suffered during Covid as the change in the market has been too big for their models to support.

by Closi 6y ago

dTal 6y ago

>As soon as others can use the algorithm any ability it has to beat the market is instantly lost. Head scratcher - why would anyone else use it then?

singhrac 6y ago
It’s not as instant as the commentator makes it out to be, or as decisive. You have weights of X and they have weights of Y. The capacity for the algorithm is $2mm of risk but you can only deploy 200k right now because your fund is smaller, etc.
Closi 6y ago
To be honest it's not instant as everything has time lags and I'm assuming new strategies are very quickly incorporated into the market price, but if you have a market-beating algorithm and others start using it, that reduces the returns you generate potentially down to zero (depending on how efficient you think the market is). The idea of an algorithm is that effectively you are wanting to work out the market value (or potential future value) of stocks/commodities to calculate if they are underpriced, i.e. you think a stock valued at £0.90 is actually worth £0.95, you buy them at £0.90 and hope to profit when people realise it is worth more. This gap between what you calculate, and the current market price, is the room you have to profit. If others in the market start to use the same calculations as you, everyone will benefit from a more 'accurate' view of the underlying value of the asset, and this will change the market price. If you can't be the first-mover on this anymore you have lost your advantage. Because of this, automated trading bots that actually work (which tend to be highly domain-specific, e.g. a bot that just estimates oil futures based on satellite imagery) tend to be sold to hedge/quant funds who can exploit the information asymmetry without disclosing the trading strategy.
- nexuist 6y ago
  > a bot that just estimates oil futures based on satellite imagery Are there any resources containing lists of software projects or companies that do work like this? This and using satellite imagery to identify car models so you can estimate the average income of an area from its parking lots seem so fascinating to me. I imagine there's probably millions of unrelated, free data sources out there that could be linked together into something useful for market trading.
  - Closi 6y ago
    A few links you might find interesting: https://www.bloomberg.com/news/articles/2017-12-16/satellites-are-reshaping-how-traders-track-earthly-commodities https://www.bloomberg.com/news/articles/2017-12-16/satellite... https://alternativedata.org/ https://alternativedata.org/ Although some novel strategies will be based on using publicly available data sources, a lot of it is often working out how to extract new data to create a private data source which has information others can’t access. Examples of funds would be Renaissance Technologies and Two Sigma. It’s worth noting that these funds have really suffered during Covid as the change in the market has been too big for their models to support.