If you’re a stock market geek, new software can help you start a disrupter business
Is there a frustrated quantitative trader inside you waiting to escape? The good news is that now it can. A new breed of online platforms is offering users the data and tools to build their own computer trading programs.
On the website Quantopian, where 5,000 of the 89,000 users are from the UK, 14 of the best programs are being used to manage money. The creators receive 10 per cent of any investment gains. On the website Qantiacs, the profits split is the same, but the 4,000-plus members enter a quarterly competition and the best three programs are used to manage up to $1 million.
So what do you need to do? First, come up with a theory about what is driving the price of, say, stocks on the FTSE 100. You might decide that companies that beat their earnings forecasts will gain in price over the next three days and those that miss them will fall. Next, formulate the theory into a set of rules you can automate — your algorithm. Then test your algorithm against the historical data — stock prices and quarterly earnings results for FTSE 100 companies — tweaking as necessary. Finally, simulate a real-life trading environment, feeding your algorithm with real-time data to see how it does.
Armchair traders have long tinkered at home on their computers. What frustrated them was the fact that the data they needed to check that their models worked was guarded by the financial industry. Not any more. Quantopian provides reams of data on the S&P 500 via the website, from historical prices to measures of corporate fundamentals such as earnings. Quantiacs provides similar resources for US futures markets.
Antony Jackson, a lecturer at the University of East Anglia whose algorithm won second prize in a recent Quantiacs competition, has just started collecting his first “royalties”. “I was attracted to the open-source software and the large set of futures contracts, ranging from agricultural contracts and precious metals through to more traditional products such as the S&P 500 equity index,” he says.“Anyone with a solid background in data analysis can benefit,” says Martin Froehler, the founder of Quantiacs. Most users are engineers, data scientists, software engineers, research analysts or academics. However, one of Qantiacs’s biggest stars is a 19-year-old US maths undergraduate, whose algorithm is being used to manage £1 million.