Quantitative trading – what is it

Today we will try to understand as strategy of this kind who applies them and what we should pay attention when developing own systems to work.  



Quanta or alternative method of indicatorless trade 



It is known that the main objective of trading is a prediction of a trend or points of a turn of quotations. It is invariable for any kinds of tools and strategy, except cases of arbitration. The trader defines future change in price by the fundamental or technical analysis. 


In case of algorithmic trade fundamental indicators are excluded, robots are tested on a wide interval of history without exception of unexpected political events or economic crises. The loss or a profit as a result of such force majeurs are considered in the lump of the received strategy work indicators. 


However there is the third method of trade in the market Forex which does not use the fundamental or technical analysis, trends for it a minor question. At the same time creators of strategy are far from the markets and a subject of trading, names of heads of the Central Banks for them an empty phrase, and currency pairs serve only as symbols for loading of history of quotations. 


This method received the name of the quantitative trading which replaced a task of the forecast of a trend for search of optimum coefficient of Sharp – a set of currency pairs and strategy which in total will make stable profit. 


The phrase "constant profit" sounds as search of Graal for many of us who lost not one deposit in the market Forex and the read a lot of literature on trading. Actually advantage of quantitative trading – long ago a fact in evidence. Investment hedge funds create quantitative algorithmic strategy already more half a century. 


Some bright representatives are known to all, as well as results of their algorithms which worked decades with profit. In particular, George Soros's fund – Soros Fund Management founded in 1969 from the first days used only mathematical strategy. 


Average stable profitability of fund – 20% per annum in 50 years of work, at the same time the financier, unlike the funds trading in constantly growing stock market, for example, in Berkshire Hathaway of U. Buffett works by all types of tools, even to cryptocurrencies (since April, 2018). 


Soros became one of the first traders who proved inaccuracy of the fundamental and technical analysis and earned on large miscalculations in monetary policy of the Central Banks and advantage of logic of figures and mathematical models. 


At the end of the 20th century investment funds and banks began to employ actively programmers and mathematicians after development of the market of options and open recognition of merits of Fischer Blek and Myron Shoulz. The Nobel Committee handed an award for opening of the mechanism of the trading allowing to earn on volatility of the market regardless of the direction of a trend. 


The model Bleka-Shoulz of pricing of options cardinally changed trade strategies and the principles of hedging, having proved advantage of approaches of the mathematical analysis, having made profitable 80% of positions a market of makers and investment banks. 


At the beginning of the 21st century the first large funds where founders and personnel were not connected by training and to the previous professions with trading or economy began to arise. In the daily work such companies do not use schedules or economic forecasts – only a "live" stream of asset prices processed at the same time by several thousand algorithms. 


Examples of such completely algorithmic funds where billions of dollars are trading on quantitative strategy without participation of the person, are: Two Sigma Investments ($60 billion), DE Shaw & Co ($60 billion), Renaissance Technologies LLC ($110 billion). The companies offer universal algorithms, the investor independently chooses the markets – stocks, bonds, goods or Forex. 


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