
Quantopian Brings Algorithmic Trading To The Masses - fawce
http://www.forbes.com/sites/tomiogeron/2013/01/23/quantopian-brings-algorithmic-trading-to-masses/
======
SeanDav
Call me cynical but this is a bad idea, and not for Quantopian either. It is
well known that only a small fraction of traders ever end up making money
consistently.

Effectively Quantopian get a vast and relatively cheap set of
researchers/traders to develop strategies and they can simply cherry pick and
front run the most successful. This means that the actual developers of the
successful strategy will quickly be muscled out.

Of course Quantopian would deny they would ever do this but they have full
access to all your code and results and can do what they like with it. You
really think a "Wall Street" company is going to be happy with your $nn a
month subscription fee when they can see you are running a strategy that when
scaled up a bit could make so much more?

~~~
NateDad
It's 8 guys hacking in a small office in Boston. Hardly a "Wall Street"
company. (disclosure: I've worked with half the team before... and they're all
the best devs I've ever worked with. I do not work for Quantopian.)

~~~
SeanDav
They are being backed by GETCO, which most definitely is a "Wall Street"
company...

~~~
jik
There are all sorts of reasons why GETCO might have chosen to back us (I work
for Quantopian), but I can say with certainty that "Steal algorithms from the
people who wrote them" wasn't one of them.

GETCO really doesn't need to steal other people's algorithms.

~~~
SeanDav
I may well be maligning you but on the other hand I have over 20 years
experience working as a trader/researcher and developer in the finance
industry for tier1 investment banks as well as hedge funds and have seen a
lot. You are not doing this for "the greater good" you are doing this to make
money, as is GETCO et al. Stealing algorithms and protection of algorithms are
fundamental issues in the industry.

I would suggest you guys try to assuage fears about this by doing as much as
possible to prove your true intentions.

~~~
jik
_You are not doing this for "the greater good" you are doing this to make
money, as is GETCO et al._

Yes, we're doing this to make money. However, making money and doing good in
the world are not mutually exclusive, and making money and stealing are not
inextricably linked.

We believe we can make money at this, or we wouldn't be doing it. We intend to
make money in an ethical way, giving our users the tools they want and
respecting and protecting the privacy of their intellectual property.

 _Stealing algorithms and protection of algorithms are fundamental issues in
the industry._

I entirely agree, but it does not follow that everyone doing algorithmic
trading is a thief or that the only way to make money from algorithmic trading
is to be a thief.

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niggler
Quantopian suffers from a few problems (not unlike Access or the other 4GLs):

1) platforms like thinkorswim get you 90% there (and have an associated
brokerage so you can also run it). You can write powerful trading scripts
using a wide variety of signals, but for the last 10% you will need something
more powerful like C or matlab or excel.

2) terms of service are always shaky -- if you have alpha, you want to guard
that like a first born child.

3) other people (<http://tradingphysics.com/>) offer market data at very low
prices, which is far better than trusting a third party with your code

4) oftentimes strategies don't directly translate to production profits, and
to a great extent they depend on simulator assumptions (let's say that there
are 10K shares offered at the best selling price what happens when you try to
buy all of them? What happens if you are stopped due to RegNMS or some other
oddity? What happens if the quote is fake or will be canceled by the time your
order reaches the exchange -- a common tactic of Chicago firms like GETCO?)
for which you have no control. But now, given that they don't have a BD
license, you need to go through someone else (adding another layer and process
that potentially could cause problems later on -- I've seen a similar
situation happen where a person leaves one company to join another, only to
find out his trading strategies don't work in the new place )

Tl;dr: there are better platforms for getting your feet wet, and if they
aren't good enough you are better off going with a real solution.

~~~
ryanslade
Both the sites you list seem to be US based. Are there any UK based solutions?

~~~
specialdragon
www.timetotrade.eu

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steve8918
It's an interesting idea, but most successful retail algo traders probably
won't trust their bread-and-butter algos to a cloud-type solution. I've been
algorithmically trading for a few years now, and I've invested money into
Ninjatrader, where I program my algos and run things from my own computer.

If anyone had their own algos, they would probably be too paranoid that
Quantopian would run backtesting on every single algo, and cherry pick the
best ones for themselves. Whether or not it's true doesn't matter, it's most
likely the common thought process that any successful algo trader would have.

That would leave only the inexperienced and beginning traders that would be
more apt to fail, since algo trading is very, very, very hard.

~~~
brooksbp
Do you have any book recommendations? Technical analysis? Quantitative
analysis?

What makes it so hard--trying to come up with a good model?

~~~
dunster
I'd argue that a lot of the hard parts of algo writing are solved by
Quantopian. Hard:

* Data. You need to test your idea. Most historical stock data (like Yahoo) excludes companies that went bankrupt or were bought or otherwise disappeared. That's called survivorship bias. If you run a backtest on the finance industry and you don't include things like Lehman, you're going to get the wrong answer. Add in things like Hurricane Sandy, MLK Day, 9/11, mergers, acquisitions, stock splits, etc. and data is very painful to put together. * A backtester. Once you have you data, what do you put it into? How do you calculate commissions? How do you calculate slippage (your order affects the price, remember)? How do you avoid look-ahead-bias and other bugs that plague backtesters?

Coming up with an idea to trade is hard, but it's only a part of the problem.
I'd say it's the most fun part of the problem, but it's only a part.
Quantopian is trying to remove all of the hard parts and let you do the easy
parts. We have tens of thousands of lines of code (backtester, IDE, etc.) and
we're leaving the most exciting 100 lines of code to our members.

On the other question about books. I'd recommend a couple: * Ernie Chan's book
is a great place to start [http://www.amazon.com/Quantitative-Trading-Build-
Algorithmic...](http://www.amazon.com/Quantitative-Trading-Build-Algorithmic-
Business/) * More advanced: <http://www.amazon.com/gp/product/0470128011/>

I work at Quantopian.

~~~
steve8918
Backtesting is only 1/2 to 1/3 of the actual task of algorithmic trading. When
it comes to actually trading money, if you're not careful and cover every
corner case, you really could lose your shirt. I can't believe that 100 lines
of code is all that you would need to cover all the edge and failure cases
that could lose yourself a lot of money.

What happens if the network drops while you're in a trade, or in the middle of
executing an order? What if you have a partial fill, and you have a partial
buy order hanging around and a full sell order out there? What if you have a
stop limit order to exit a trade, and it blows through your limit? Do you have
a backup stop order just in case? There are a lot of issues that you can't
backtest that can only be learned once you start trading real money. I've had
situations where I ran my algos on the DAX overnight, and I woke up to find
that the exit order never executed, and I was 1000 euros away from where I
should have gotten out. Luckily, this trade was in my favor, but it scared the
shit out of me because it could have easily gone the other way. I've also had
my internet connection drop overnight, and I had to scramble to figure out how
to get out of a trade I was in.

The other issue is interpreting backtesting data, and knowing the difference
between over-optimized data (ie. curve fitting) vs something with an actual
edge. You can make almost any algo profitable if you curve-fit, even a simple
MA cross-over can show extremely profitable results, if you over-optimize the
data. But it won't work in real life. So being able to sift between falsely
good algos and actually profitable algos is very, very hard, and takes
experience. This is the biggest problem with trying to find an actual algo
with an edge, it's very very hard.

I wrote my own backtester and I download my own data nightly, and that
definitely takes a lot of time and effort, but the hardest part is the actual
trading, by far. The psychology involved with trading is an order of magnitude
harder than coding, and the hardest thing I've ever done in my life. I blew
through a shitload of money, just to learn the ropes.

In terms of algo trading books, I really don't have any recommendations. I
found most of the algo trading books are similar, telling you to watch out for
curve fitting, etc. Where they lack is helping you come up with actual trades.
My recommendation is a book called "Mastering the Trade" by John Carter. He
gives out trade setups that he actually used. They may no longer be
profitable, but it's the closest thing you can get to actually learning
various day trading techniques, and you can implement those to get an idea,
and then work your way from there.

I'm not hating on Quantopian, it looks pretty nicely done, and hopefully it
takes off. But from experience, I know that algorithmic trading is by far the
hardest thing I've done. If inexperienced traders jump in, they'll spend a lot
of money on "tuition" for sure.

~~~
brooksbp
What service do you use to download your market data?

~~~
steve8918
I use IQFeed. I pay about $80/month for it to download tick data for futures
and stocks.

------
confluence
This is not a good idea. People can barely invest in regulated securities
doing a dipshit buy and hold strategy.

For professionals - brokerage houses already do most of the hard work and
provide decent APIs - so they don't need it either.

Algo trading is cool - but it's most definitely NOT for the masses.

------
gozmike
I'm happy for Quantoplan making steps to improve the user experience around
algorithmic trading, however armchair traders and many hedge funds have been
using platforms like Tradestation (and dozens of others) to back-test and
develop algorithmic strategy for well over a decade.

I spent a year working as a researcher for a now-failed hedge fund (failed due
to regulatory issues, not performance, we were doing 20% year over year on
commodity futures). As an engineer/math guy, it was an incredibly interesting
experience because it opened my mind to all sorts of theoretical possibilities
and explorations of pattern matching, noise filtering, exotic concepts like
wavelets and more.

However, I quickly learned a few things from experienced traders and from
seeing my work move from testing to prod. What I learned makes me extremely
hesitant to employ automated trading systems on my own money:

1\. Historical back-testing is a great way to curve fit. You can hyper
optimize your algorithm looking for arbitrage opportunities, trends, whatever.
You'll get performance reports that make it seem like you're ready to print
money. Then you get out and trade and discover that your system can't keep up
with market movements because the indicators that you relied upon may have
exhibited correlation but not causation.

2\. The boon of algorithmic trading is that it attempts to remove emotion from
the trading process, not that it is a better predictor. Listening to a machine
should help alleviate the symptoms of "fear and greed" that lead to abrupt,
incorrect decision making. Think about that for a minute, some hedge funds
advocate algorithms not because of predictive power but as guarantees of
rational decision making.

3\. Conversely, while developing and testing a system, a smart person will
almost inevitably try to bring in exotic concepts into price prediction, order
sizing and trend following functions. Given enough time, complexity will
increase until it becomes challenging to understand the rationale behind a
system's output. Trading this way is scary because real money is being moved
without an understanding of fundamental and macro-factors.

4\. You will _very_ likely lose money. Even at the size of our fund (1B under
management) we were sometimes at the mercy of market makers who gave us crap
prices on trades or seemingly manipulated prices to hit our stop orders and
cause us to exit positions too early.

I love seeing the ideas behind algorithmic trading popularized, however I want
to make sure that anyone embarking on it understands the market as a system
and not just as a time series to be modelled. It's composed of real human
beings, with emotions running wild. If you decide to play, then play, but do
so wisely and carefully and remember to keep it simple.

------
Shenglong
There's a lot of criticism here, but as someone who has never done algorithmic
trading before - it's very exciting. I don't believe Quantopian's intention
was to target veterans, since I'm sure you vets have your own system for
testing and trading already worked out.

As a newbies with no experience in the field at all, it is unlikely that I
would've even tried without a platform such as this. If Quantopian's intention
is to bring more people into the field and get them exposure, even now, it's
quite an impressive stepping stone.

~~~
confluence
_> As a newbies with no experience in the field at all, it is unlikely that I
would've even tried without a platform such as this. If Quantopian's intention
is to bring more people into the field and get them exposure, even now, it's
quite an impressive stepping stone._

This assumes that people with an inability to get experience should get into a
field where one can lose one's shirt in less than 24 hours whilst competing
against some of the smartest people on Wall Street.

There are barriers to entry to various things for a reason - e.g. driving,
steel milling etc.

It's to stop newbies getting shot.

~~~
Shenglong
You can lose all your money in so many ways; a reasonable expectation is that
players will use caution, and hedge their risks.

Applications aren't meant to teach common sense.

------
undrcvr
beat me to it, working on something similar... with a twist. btw they're on
github : <https://github.com/quantopian>

~~~
jbredeche
Hi undrcvr, I work at Quantopian. We'd love to hear your thoughts on our open-
sourced Zipline backtester: <https://github.com/quantopian/zipline> and learn
more about what you're building - there are lots of interesting challenges in
this space.

~~~
monksy
How do you guy handle situations where there may not be a trade that day. For
example: with OTCBBs. Also, how would you handle unexpected market closures
[such as the flash crash?]

I've been developing my own back tester for quite a while [in Java] and I must
say: You guys are doing some interesting stuff and its a challenging area.

~~~
fawce
Our backtester is event driven. During any closure, there are no events, so we
simply "fast forward" through the closure and send your algorithm the next
available event.

We provide a facility for working with trailing windows as pandas dataframes,
which are updated by the events. You can control whether those trailing
windows have NaN values for missing bars, or if values are filled forward.
You'd keep the NaNs if you want your algo to be aware of empty bars (stock is
held, thinly traded, etc). You keep the fill forward if you want to avoid
coding guards on NaNs :).

------
hitechnomad
I will be releasing my own algo trading system open source in Feb, if anyone
is interested. I'll do a post on HN once it's released.

~~~
undrcvr
would you share a twitter link so we can be alerted when you release?

~~~
hitechnomad
I'm @hitechnomad on twitter. I'll tweet once it's on github. The system I'm
open sourcing is my own system for trading on my Interactive Brokers account.
It should be able to handle any FIX-based exchange/brokerages. Currently
finishing a contract at a bank, and I can't trade on my personal account while
I am doing this contract, which is why I am waiting until Feb to post it.

~~~
crucialfelix
I use IB too. What language is the framework in ? Java ?

~~~
hitechnomad
c++

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n3rdy
Wouldn't you need a broker account with minimal spread and very low broker
fees for this to work?

The banks who are already doing high frequency trading don't have to worry
about this, they can profit off a trade after its gone up a fraction of a
point or so and close the trade, your average trader has to make up for the
transaction fees or spread which are sometimes 10 to 100 times what a bigger
firm has to cover.

------
muyuu
I'm a bit surprised about the amount of people afraid of trading in HN. Or
rather afraid that others would trade en-masse.

------
randomsearch
Is algorithmic trading a force for good in the world? If not, is it a good
idea to increase the number of people using it?

~~~
fawce
Algorithmic trading is a force in the world; whether it is good or not depends
on the people wielding it. I think the danger isn't the technology itself, but
the small number of people who understand, develop, and control it. I believe
having more quants will give algo trading/quant investing a better chance of
being a force for good.

(I work for Quantopian)

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racecar789
Great job. Surprised at the amount of negativity for an app that is meant to
help people.

This is one of those disruptor-style apps that pierces the veil of an industry
and brings professional level tools to the masses.

I sat up from my chair after seeing this and said "wow". Have not done that
for an app in a long time.

------
gfodor
This will be cool if/when it has:

\- options

\- futures

\- fundamental company data

Until then, it's matlab.

edit: Ok, this is a bit harsh. It's already pretty cool.

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dear
Which broker-dealer do you use to route your orders to the exchanges?

Do your orders flow through Getco's infrastructre at all?

~~~
fawce
We don't use GETCO's infrastructure at all. They help us with expertise in the
field and advice on how to build software for traders.

------
jhales
Great stuff.

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hnwh
great work guys..

