
The Quants Run Wall Street Now - frostmatthew
https://www.wsj.com/articles/the-quants-run-wall-street-now-1495389108
======
caminante
_> "In the battle for talent, quant-focused firms often are reluctant to call
themselves hedge funds or even investment firms. Quant firms would rather
emphasize their similarities to cutting-edge tech companies in Silicon
Valley."_

Mirror, mirror, on the Wall [Street,] who's the [quantiest] of them all?

I sense many money managers can't differentiate themselves with current ops
and now want "quant headcount" as a differentiator in pitch decks.

~~~
salesguy222
Haha, awesome thought that you've brought up here.

I bet we will start to see title inflation as a result as well- that is to
say, it is not that more highly skilled quants will be hired, but rather run-
of-the-mill employees will be branded and marketed as "quants"

I've noticed this drift everywhere:

-Sales people are now "product evangelists" or "product specialists"

-Operations employees who do accounts payable or receivable are now "Finance Analysts" (seriously)

-HR are now "Human Capital Analysts"

-And virtually everyone is now "Senior" or "Lead" or even "Manager" (of some process, not of necessarily employees)

So, I guess we shouldn't be surprised when someone fresh out of college who
more or less guesses on stock picks with the firm's money and some fancy
charts are now hailed as "HIGHLY SKILLED QUANTITATIVE ANALYSTS"

------
SirLJ
Everyone can try to do it, but you need to spend the time and educate yourself
like in any other profession or hobby and the first step is to go to eBay and
search for historical stock market data, you can buy 20 years of data for less
than $100 and you can test all trading ideas for free and without losing a
single penny...the barrier for entry is very low, some Python knowledge +
Linux machine and the data and off you go...

~~~
tzs
If you are going to use machine learning on the data, though, make sure you
know what you are doing unless you are just using someone else's complete
package. It's really easy to screw up machine learning.

I recall an example given in a class I took. (I may be misremembering the
details, though).

Some people were trying to apply machine learning to currency trading. They
had a bunch of data. They normalized the data (a common step in machine
learning), and divided it into training and test and validation sets, and
trained their model. Everything looked great, and they were getting excellent
results on the test set.

When they went live with real money instead of making the nice profit
predicted, they lost a lot of money.

Their mistake? They normalized the whole data set up front. What they should
have done is split it into the training, test, and validation sets, and
normalized each of those individually. Normalizing before splitting
compromises the independence of the sets, biasing the learning.

(I must admit I never did quite understand this. Normalizing is optional. As
far as I understand if one does an arbitrary transformation on one's data as a
whole that should not actually make learning go bad, at least as long as the
same transformation is applied to all the input when you go live. So when they
did a normalizing step on the whole data set, why wasn't that just like doing
any other arbitrary transform? There is serious dark magic here...)

~~~
mrkgnao
Without a minute understanding of what's involved, I'd guess that normalizing
is a non-local operation, in the sense that the effect of normalizing some _x_
depends on the other elements of your dataset, so that normalization includes
the "information" of the rest of the data implicitly.

In real life, that's sort of like having access to the answers when you're
given the questions. Being trained in that environment won't do much good.

~~~
matheweis
I think you've got it. The part about normalization across the entire dataset
implicitly including information is by definition true (it contains, at a
minimum the true min/max). Can't speak to the rest, though, as I'm still
learning myself... :)

------
dluan
My question for these new would-be quants is, how do you see your work?

I know there are certain types of smart whizzes who see working for
Google/Facebook/Amazon as some sort of intellectual step down, or where in
finance the value to society is some handwavy "market-making" argument
(depending on how philosophical you get), but presumably these types going
into this are also tenure-track, research producing scientists. You could
spend your time disproving the Higgs at Cern, or you could optimize pennies
(albeit in ever more challenging ways).

Have these Renaissance/TwoSigma type firms really ever delivered social value
that isn't a new trading model with a limited shelf life? Is there new tech?
Network, hardware, software innovation that spills over into the real world?

~~~
tptacek
There's nothing handwavy about the liquidity argument. Improving liquidity
reduces the cost of trading for almost everyone in the market and thus makes
almost everyone just a little wealthier. That means ordinary people, like
schoolteachers and custodians, retire with a bit more money, and are a bit
more comfortable; it means lots of people can donate just a bit more money to
charitable causes without crossing whatever financial safety line they have,
&c.

It's hard to make the same kind of argument about adtech.

~~~
bmpafa
I think that, in terms of social value, the point of diminishing returns for
market making and liquidity has long since passed, especially wrt social value
for Avg. Joes & Janes.

I def. don't hold Facebook etc in a much higher regard here, but if we're
talking about brain drain from socially useful fields, I don't think anyone
can credibly argue that finance (esp. HFT et al) provides any meaningful
social value.

In fact I'll go one further: by sucking up the best and brightest, high
finance is doing a net harm to more socially useful sectors.

I'm not being prescriptive wrt what choices people should make, btw, just
speaking in terms of social good.

~~~
nialo
This is somewhat self correcting.

HFT firms are make money by taking a spread, which is effectively the cost of
making a single trade. As they compete and get better and better at there
jobs, this spread well be reduced, the amount of money available to pay for
the best and brightest programmers will come down, and they'll suck fewer of
them away from other parts of the economy.

The point being, the further they go past this 'point of diminishing returns',
the less money they can possibly make. To the extent that HFT is a zero sum
game, there will always be a limit on how much money they can spend.

(I believe but cannot prove that this limiting effect has already started, HFT
firms are consolidating and making thinner margins than they used to)

~~~
bmpafa
That's a good point, but would that happen quickly enough to undo whatever
brain drain problems the industry creates?

Nearly all hedge funds still take 2/20 for example, and their returns have
been questionable for a decade, so idk we have reason to have faith in high
finance's ability to self correct.

------
zackmorris
Anyone have hard numbers on if/by how much quants outperform old fashioned
techniques like flags and finding stocks that tend to go the opposite
direction from the one you're interested in? I don't know the terminology for
all this but I know there are limits due to uncertainty so even the best
algorithms may not do much better that someone guessing. Do quants do 10%
better, 2x better, 10x better?

My Dad and I had a relatively lucky streak where we doubled our money day
trading Apple on margin after the September 29, 2000 dot bomb:

[http://money.cnn.com/2000/09/29/markets/techwrap/](http://money.cnn.com/2000/09/29/markets/techwrap/)

He saved quite a bit of money by being able to trade 1000 shares each time.
Since the stock swung +/\- 2% a couple of days a week it was pretty easy to
make 2% most days, 5% on a good day. It was like a casino where the odds were
2% in your favor, with a ratchet that just sold when it was about to go down.
Then you just guess the shape of the day’s heartbeat. He wouldn't even let me
sell short because he felt it was unethical, so we only gained half what we
could have which was agonizing to endure. I pleaded for him to get out because
he was up a couple years of my wage at the time and my gut was screaming at me
that something wasn't right. Then we lost all the gains the day 9/11 happened.
We sold a few weeks later and ended up breaking even. Then Apple went to 500
over the next couple years with splits thrown in to boot.

I wanted to try day trading myself but they changed the law in 2001 so you had
to have $25,000 to trade on margin, so only the wealthy could get twice the
gains:

[https://en.wikipedia.org/wiki/Pattern_day_trader](https://en.wikipedia.org/wiki/Pattern_day_trader)

I personally don’t buy any of the standard advice about risk because it’s more
risky to keep your money in a bank and only get a couple percent a year. I
felt so miserable about the whole experience that I worked a bunch of dead end
jobs and ran up my credit cards over the next several years. It’s
heartbreaking to know how hard typical folks in the world work to make $100 a
day when day trading $50,000 can easily earn $1000. But those folks don’t have
$50,000 so are locked out. I guess in my heart it felt like stealing, or at
the very least finding yourself in the universe where you won and thinking you
somehow earned your survivor bias. So I don’t do it anymore, and I’m even
hesitant to invest because politics are so volatile right now. Sorry to
digress, I should have stopped at the first paragraph.

~~~
nullnilvoid
> I wanted to try day trading myself but they changed the law in 2001 so you
> had to have $25,000 to trade on margin, so only the wealthy could get twice
> the gains:
> [https://en.wikipedia.org/wiki/Pattern_day_trader](https://en.wikipedia.org/wiki/Pattern_day_trader)

This is how the rich get richer and the poor get poorer. The rich can trade on
margin, pay less tax (capital gain tax is lower than even income tax), and
have many more other opportunities. The middle class is shrinking for a
reason.

~~~
nradov
This is ridiculous. Poor people aren't going to get rich by day trading on 2x
margin. And if someone in the US seriously wants to get into margin trading
it's not that tough to scrape together $25k by getting a second job and living
frugally for a couple years.

Also if you have decent credit you can simply take out an unsecured personal
loan for $25k and deposit that in your trading account. This is effectively
the same thing as trading on margin.

~~~
nullnilvoid
Why do the poor have to get a second job in order to get 2x margin? Why do
they have to jump through the hoop when the rich don't have to? If the poor
have $2,000, why cannot they use margin as leverage? The opportunities are not
equal there.

~~~
nradov
Why is life not perfectly fair for everyone?

If the margin trading limit was lower then the news would be full of sob
stories about how greedy brokerages let unsophisticated people get in over
their heads and then took their life's savings on a margin call. Sometimes
stocks go down.

~~~
nullnilvoid
It is not fair for everyone. But this is an artificial, unneeded hoop that
could be easily removed. If we set it at $25,000, does that prevent
"unsophisticated people take their life's savings on a margin call"?

------
jessriedel
There's a plot where they differentiate "quant hedge funds" from "other hedge
funds". How are they defining this? (To what extent is this just a matter of
quant being sexy and more firms describing themselves as quant?)

~~~
moxious
It's about whether the computer does the analysis or not, but that's just a
stand-in. The real difference is whether and idea or investment strategy can
be systematized to the point where it's automated. That implies that there's
no emotion or personal bias in most individual trades.

Contrast that to humans doing the picking where there's a fair amount of "lick
the finger and hold it up to see which way the wind is blowing"

------
mianos
They do if you think balancing an index weighed fund is high math.

~~~
cheez
For the most part, execution does not require high math, but the modeling
required to find arbitrage or alpha does.

So for example, managing an index weight fund is simple on the face of it but
when and how you choose to rebalance your portfolio can affect your drift.
This is the part that requires high math. This is even more important if
you're talking a billion dollar fund as opposed to a 100,000 personal account.

~~~
lisper
> the modeling required to find arbitrage or alpha does

Not really. Even if everyone is just throwing darts, half of the players will
beat the market, and the more players you have the more extreme the outliers
will be. Of course, the converse is also true, but no one pays attention to
the losers. Both Vegas and Wall Street prosper from this same principle.

~~~
dsacco
Virtu only lost money trading one day out of 1278 trading days between 2009
and 2014. In the most uncharitable analysis (1278/2; or the lost day happened
in the middle), they had a 0.5^639 chance of doing that.

Maybe you disagree with 0.5 per day. Let's make it 0.9!

...But that's still 5.7 x 10^-30. How many firms do we need to exist for this
to emerge by chance?

This and website bug bounties being sold on the black market are my two HN
crusades. I have heard darts, I have heard coin flipping; I hear all manner of
analogies from people who stubbornly insist or strongly imply that
consistently, purposely beating the market is infeasible _in principle._

But no one ever does a _modicum_ of analysis to support whatever trite analogy
that's thrown out, they just wave their hands and exclaim, "statistics!".

So here is something actually quantifiable. If you have something quantifiable
to refute my analysis of your analogy in turn, please share it by all means.

~~~
kasey_junk
> Virtu only lost money one day out of 1278 trading days

Lost money _trading_. If they made $1 trading that counted though I assure you
that day was a loser from a business perspective. I also have not lost money
trading in 3 years, simply by not trading at all.

It doesn't really detract from your broader point, which I don't have a strong
opinion on but that stat is a pet peeve of mine as it's fairly meaningless.

~~~
SEJeff
This is massively incorrect. If Virtu only made $1 trading, they would still
make massive amount of $$$ via exchange rebates, as they are a designated
market maker. In fact, they aren't the only market maker that does this. A
market maker guarantees they'll take trades on both sides of the book, so long
as their strategies aren't grotesquely losing, they'll always come out ahead
due to exchange rebates.

[http://www.investopedia.com/articles/active-
trading/042414/w...](http://www.investopedia.com/articles/active-
trading/042414/what-makertaker-fees-mean-you.asp)

Source: I worked for Virtu's predecessor Madison Tyler for 4 years and for
Virtu after it merged with Madison Tyler for ~8 months and have first hand
experience with HFT.

~~~
kasey_junk
I actually think that exchange rebates _reinforce_ my point. I've seen algos
that would dump trading profit to get their trade levels into particular
rebate levels for instance. Those algos would look bad under the metric of
"never lost money trading" but look good under the metric of "holistic
profitability".

I just am annoyed when people site the former when talking about Virtu, both
using it pejoratively or in praise of the firm, because I don't think its a
terribly useful thing to say. We can judge Virtu the same way we judge every
other firm on the planet, by actual profits, there is no need to come up with
a new metric for them.

~~~
dsacco
In fairness, while I agree with your second paragraph, Virtu's example is a
very neat case study for the limited dialectic purpose of demonstrating
trading _consistency_ , not necessarily profits. I have found that using
profits for this particular debate isn't convincing for others, even if it
shows a fuller picture; the actual win rate for trades is a simple and
quantifiable point to refute comparisons to e.g. coin flipping because it
shows that they are capable of doing something over and over in a market that
is claimed to be resistant to such a thing.

~~~
kasey_junk
But when people are talking about coin flipping, they are talking about real
profit, not trade PnL. If your overhead to get into a trade is more expensive
than the PnL on that trade, your consistent ability to make that trade is not
a good thing, and that negative should be counted against your win rate wrt
things like the efficient market hypothesis.

Again, I actually don't have strong opinions about _coin flipping_ and trading
being equivalent (and I think Virtu is likely a bad place to have that
conversation vs a hedge fund because its not really an investment firm its an
execution one) but I think claiming trading PnL refutes it is wrong.

------
m3kw9
Let's just look at big picture on what actuall affects stock prices over log
run: a good company is be found out eventually

~~~
mi100hael
That's the hope. Otherwise your diamond in the rough will remain a lump of
coal forever.

------
melling
What languages are quants using to build their models? R, Python, Java,
Haskell? Are there any favored tools?

~~~
jessriedel
Trading firm Jane Street is well known for using OCaml.

[https://blogs.janestreet.com/why-ocaml/](https://blogs.janestreet.com/why-
ocaml/)

------
msavelyev
Can anyone provide any example of what kind of models they build in all these
hedge funds? Also what data their models are usually based on?

------
rubyn00bie
For those who don't know this trick, click the web link and go to the site via
google (which is what the web link does) and more often than not the paywall
disappears and you can read the article (at least consistently for WSJ
articles this works).

I do wish the web link was on the index page instead of the comments page so
it was faster/easier/more obvious to use it.

~~~
grzm
The web link no longer works for WSJ submissions for me. Have you found that
it still works for you?

~~~
rubyn00bie
Yep still works for me but, I browse in private browsing mode constantly. It's
probably a cookie that's preventing you from accessing it.

~~~
grzm
It doesn't work when I'm in private windows in Chrome or Safari.

~~~
rubyn00bie
Have you tried from a mobile device or using a mobile browser's user agent?
Seems like a lot of work but right now a lot of companies care only about
mobile views and want to show growth in it-- so there's some reason to believe
it would work for mobile but not for desktop. Simply because the company
doesn't want to send away mobile traffic so their metrics look good.

~~~
grzm
That's one I hadn't thought of. Using the User Agent option in Safari, in a
private browsing window, still no-go for this submission for me.

------
crimsonalucard
The value of something across the span of milliseconds has no meaning. At this
temporal level of resolution it's just a gamble no different from games like
poker. Why deploy brain power on trying to extract this value? What a waste of
intelligence.

~~~
meddlepal
If you haven not been keeping up, since about sometime in the mid-1980's
acquisition of Money became the defining virtue of goodness and success.
That's all that matters now.

~~~
fizixer
The problem is that it's more like sports than math/science: a tug-of-war
(zero-sum game) instead of win-win.

You're pitting your intelligence against the intelligence of other quants (not
against the complexity of some natural system or something). You have 3 phds?
they bring in 4. You bring in 6? they bring in 10. You bring the processing
down to 50ms, they go 45ms; you go 5ms, they go 2ms. The game never ends.

It's even more depressing when you realize that, even if you win, you're
essentially propping up, what I like to call, a "fluff market", instead of
adding-value the way Silicon Valley and the manufacturing industry does.

~~~
crimsonalucard
Exactly. It's a total waste of resources. Put these phds on curing cancer
instead of playing a gambling game that adds no real GDP to the economy.

------
10165
I know there was just a discussion yesterday on how amp is awful but it still
is useful, e.g., to read WSJ articles.

    
    
       curl -o 1.htm https://www.wsj.com/amp/articles/the-quants-run-wall-street-now-1495389108
       sed -n '/./{/<title/,/<\/title/p;/<p>/,/<\/p>/p;}' 1.htm > 2.htm
    

FWIW, 2.htm has no amp elements, no Javascript, no images, no ads, no
externally sourced resources and therefore no tracking.

Add links to non-essential images (cf. auto-loaded by browser). With available
captions.

    
    
      sed -n '
      /./{/div class=.image/,/<\/div/!d;s/ *//;}
      /src=/{s///;s/\"//g;s/.*/<a Href=&>&<\/a><br>/;}
      /alt=/{s///;s/[\">]//g;/./s/.*/<P>above: &<\/p>/;}
      /Href=/p;/<P>/p' 1.htm >> 2.htm

~~~
duckmuck
Can you explain to me what I am looking at here? (curl -o 1.htm... >2.htm)?
And how I can use it to view an AMP page?

~~~
nl
It's two separate lines.

The first line uses curl to download the AMP file to 1.htm

The second line use sed to replace some elements in the HTML and writes it out
to 2.htm

------
zootam
paywall

~~~
wand3r
Sick of paywall posts. I don't get why this is down voted. Google trick
doesn't work for all paywall posts.

~~~
grzm
Paywalls can be frustrating. As far as I'm aware, the web links for WSJ no
longer work, and I intermittently have issues with FT. Are there others you
have issues with?

~~~
wand3r
Other than those, NYT. It's usually not too bad but iirc they are dropping
support for work arounds. It also seems to be posted with very high regularity
and volume here.

~~~
grandalf
I wish it would end. I'd like to simply hide all paywalled articles. Why not
offer a flag?

~~~
vinceguidry
I'd like a flag, but I don't want it to hide paywalled articles, but rather to
just make them a different color. That way I can skip the link and just focus
on the discussion.

I think this would cut down on most of the meta-discussion that happens every
time a WSJ or FT link gets posted.

