🧵 why does quant trading make any money at all?
Anonymous at Sun, 20 Oct 2024 15:25:35 UTC No. 16441288
The moment you have an algorithm/model that generates returns above market average, you are incentivized to 1. keep it secret, and 2. put as much money as possible into it. Because its literally free money. All you need is capital. If you can make a dollar you can make a billion. But if you are making billions, that probably affects the market itself, bringing the returns from your algorithm/model back down to market average.
So it doesn't make sense that there can be multiple competing companies and algorithms/models, because if they are consistently generating above market average returns, why are they not putting more money into it? But there are. What? Can /sci/ explain?
Anonymous at Sun, 20 Oct 2024 15:27:14 UTC No. 16441291
>>16441288
It’s wolf of wall street stuff with computers. Stocks are driven by human emotion and aren’t deterministic. All this rational agent assumptions in economics are bullshit.
Anonymous at Sun, 20 Oct 2024 15:35:13 UTC No. 16441297
>>16441288
Because with an advanced algorithm you will be getting market rate at the expense of poors that can't afford one and thus get lower rate.
Anonymous at Sun, 20 Oct 2024 15:36:18 UTC No. 16441298
>>16441288
>that probably affects the market itself
Yep. In algo trading this is called "alpha decay". Since pretty much everything you do in a market is visible, eventually you can tip enough people off that your margin disappears. Normally you try and get around this by only trading small amounts, trading small amounts typically makes it harder to for other market participants to see what you're doing. If you see some opportunity and immediately submit a massive order, you're probably going to trip another algo that will work against you probably bringing the price back down to the expected price.
Anonymous at Sun, 20 Oct 2024 15:52:25 UTC No. 16441316
>>16441288
>why does the parasite hurt its host and kill it?
Raphael at Mon, 21 Oct 2024 20:38:36 UTC No. 16443050
>>16441288
There’s a capacity problem that’s why big funds other than rentec with an infinite sharpe only net 7% after fees
Anonymous at Mon, 21 Oct 2024 20:46:54 UTC No. 16443059
>>16441288
quantitative finance and all finance based on established methods ought to make an average return, and no analyst using such methods could ever deliver high returns, except by luck sometimes.
What is to analyze when you run the same software using the same data feeds as everyone else?
Only successful traders have secret information they gather at great risk and actively defend their investments/attack competitors .Its like a war at such levels, mafia shit, where you can go to jail or get killed.
Raphael at Tue, 22 Oct 2024 02:06:32 UTC No. 16443461
>>16443059
Their approach is to optimize for a higher sharpe ratio or sortino nothing else and capacity is the problem they are just fee whores
Anonymous at Tue, 22 Oct 2024 04:05:17 UTC No. 16443559
>>16441291
True and real.
/thread
Anonymous at Wed, 23 Oct 2024 01:33:50 UTC No. 16445116
>>16441288
Nice video choice in your pic related.
Fiat lacks an invisible hand, as positive divergence in the money supply is overwhelmingly positive, as opposed to nearly zero in hard money. The forward reaction never balances with the reverse reaction so equilibrium is never observed.
To obtain pricing power finance commits to a broad set of best practices to tune relative value of products. They are rewarded with alpha when demand and supply aligns with their predictions.
Stop guessing start learning at Wed, 23 Oct 2024 02:06:59 UTC No. 16445151
>>16441288
Became they find a market edge? This is common sense anon. You find an edge your chances go up that your right over a period of time
Probability 101