I assume their business model is roughly : to implement algorithms that find near-arbitrage opportunities by sifting through vast amounts of market data, then use those to multiply investment funds. This sounds like the perfect domain for a startup.. where a nimble small team of quant/developers would have huge advantages, by being faster to rollout.
This is almost a pure software business, so why aren't these companies more like startups? Is it because of the expense of getting fine grained and low latency market data [eg. exchange colocation]? Or is it due to the contacts needed in the biz to get the 'investment' funds to trade with? Or is it because only large financial entities have access to these risky speculative trades?
Side note : I see Jane Street Capital use Ocaml, and some other quants use KDB/Q for implementing these kinds of algorithms, so it seems innovative languages give leverage here. I was thinking Node.js + a js BTree api to access streaming data would be a nice dev environment.
Two major difference of a trading firm from a software firm:
1) Large amount of trading capital is needed to make a sizable profit.
2) Math, finance and trading skills.
A trading firm needs above 2 items in addition to technical skills to succeed. A team of good people with all 3 above items (capital, trading, tech) have a good chance to succeed.
In fact, Citadel (one of the largest quant hedge funds) was started by one person (Ken Griffin) when he was a undergraduate from a Harvard dormitory. It is pretty much a startup success story.
There is a major culture difference: trading is the key activity; coding is only secondary. This may explain why trading firms usually have a typical wall-street tough culture, and don't feel like a typical silicon-valley startup.
Not so different as you might think. After all, a large amount of capital is needed to build out a datacentre. Doesn't mean that Google is the only company that can make a profit on the Internet.
Not really on the same scale. If you're a hedge fund, the most you can make in a year is some small percentage of your total assets under management, so you need to persuade people to give you billions (at least hundreds of millions) before you can start raking in the kind of dough that pays salaries.
Nice link.. seems like HTG have taken the first step towards a pluggable infrastructure, where the plugin is the quant/programmer + their algorithm implementation.
ps. I never really understood the difference - Hedge Funds seem to be more about speculating via leverage than 'hedging'? [using their own proprietary algorithms to do that]
Comments
I assume their business model is roughly : to implement algorithms that find near-arbitrage opportunities by sifting through vast amounts of market data, then use those to multiply investment funds. This sounds like the perfect domain for a startup.. where a nimble small team of quant/developers would have huge advantages, by being faster to rollout.
This is almost a pure software business, so why aren't these companies more like startups? Is it because of the expense of getting fine grained and low latency market data [eg. exchange colocation]? Or is it due to the contacts needed in the biz to get the 'investment' funds to trade with? Or is it because only large financial entities have access to these risky speculative trades?
Side note : I see Jane Street Capital use Ocaml, and some other quants use KDB/Q for implementing these kinds of algorithms, so it seems innovative languages give leverage here. I was thinking Node.js + a js BTree api to access streaming data would be a nice dev environment.
Two major difference of a trading firm from a software firm: 1) Large amount of trading capital is needed to make a sizable profit. 2) Math, finance and trading skills.
A trading firm needs above 2 items in addition to technical skills to succeed. A team of good people with all 3 above items (capital, trading, tech) have a good chance to succeed.
In fact, Citadel (one of the largest quant hedge funds) was started by one person (Ken Griffin) when he was a undergraduate from a Harvard dormitory. It is pretty much a startup success story.
There is a major culture difference: trading is the key activity; coding is only secondary. This may explain why trading firms usually have a typical wall-street tough culture, and don't feel like a typical silicon-valley startup.
Not so different as you might think. After all, a large amount of capital is needed to build out a datacentre. Doesn't mean that Google is the only company that can make a profit on the Internet.
Not really on the same scale. If you're a hedge fund, the most you can make in a year is some small percentage of your total assets under management, so you need to persuade people to give you billions (at least hundreds of millions) before you can start raking in the kind of dough that pays salaries.
That's what leverage is for (and if it goes wrong you end up like LTCM).
why aren't these companies more like startups?
There are. http://www.forbes.com/2010/07/28/high-frequency-trading-pers...
Incidentally Jane Street isn't a hedge fund, it's a proprietary trading firm.
Nice link.. seems like HTG have taken the first step towards a pluggable infrastructure, where the plugin is the quant/programmer + their algorithm implementation.
ps. I never really understood the difference - Hedge Funds seem to be more about speculating via leverage than 'hedging'? [using their own proprietary algorithms to do that]
This video explains a bit more about what they do: http://ocaml.janestreet.com/?q=node/61