Do quants pose a threat to traders?

Overnight said:
The quacks that write that shit are not dietitians, and have never had a kidney stone. Dandelion juice? "Horsetail juice"?

The FACK! Maroons.
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Oh I see, so you prefer big pharma, eh?

Here, from a medical website, and I quote :

Dandelion tea is an excellent source of potassium, a mineral and electrolyte that stimulates the heartbeat. Potassium may help the kidney filter toxins more effectively and improve blood flow.

https://www.webmd.com/diet/dandelion-tea-is-it-good-for-you#1

Just an example.
 
Tradex said:
Care to elaborate on that please (your sentence is rather odd)?
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If markets were zero sum the stock market wouldn’t consistently rise in value. The bond market notional wouldn’t continue to grow.

both these happen because the economy is always expanding (we continue to create value and we continue find new ways to be more productive) and then there’s inflation encouraging us to invest.
 
Financial securities like stocks and bonds aren't zero sum. Everyone makes money in bull markets, and that's also why when markets tank the news describe "xx billions just vanished from the economy."

Derivatives on the contrary, is zero sum. Settlements are always a transfer of money from one party to the other.

Also I think you are confusing quants with high frequency trading. Quant is a very general term nowadays describing anything that has to do with math/stats/data/programming.

The strategies within millisecond timeframes are usually deployed by high frequency trading firms and indeed most of them are quants since these strategies rely on automated execution s and statistical analysis on massive amounts of tick data.

So HFT usually consist of quants but not all quants are HFT.
 
Tradex said:
Hi Spectastic,

I suggest you read the excellent book "Broken Markets: How High Frequency Trading and Predatory Practices on Wall Street Are Destroying Investor Confidence and Your Portfolio", by Sal Arnuk.

From the cover:

"An unrelenting focus on technology, hyper-short-term trading, speed, and volume has eclipsed sanity: markets have been hijacked by high-powered interests at the expense of investors and the entire capital-raising process. A small consortium of players is making billions by skimming and scalping unaware investors -- and, in so doing, they've transformed our markets from the world's envy into a barren wasteland of terror. "
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I read this:
The Man Who Solved the Market: How Jim Simons Launched the Quant Revolution

What I found strange is that Jim Simons was very involved in the markets since his early 20s, but pretty much failed as a trader. Considering he is a genius, he only found success in his 50s, as technology had advanced enough by that time (and his staff at the time thought he was on the verge of suicide). He wanted to be like a Soros, but ended up like the people described in your recommended book.

I had a major realization: If Jim Simons had been born 40 years earlier, he would have died a bankrupt, and/or died by suicide. Think about it.


 
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spectastic said:
I don't know that much about quants,
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Your honesty is refreshing, and your assesment in this case is spot on.


As @believezz already said, 'quant' is a much broader term than just 'quant traders', i.e. traders who use some kind of quantitative analysis as their primary tool for making trading decisions. There are quants who work on option pricing models, who work in risk management, as quant/developers, on credit risk models... the risk is endless.

In fact the number of quants working as traders (or perhaps more accurately in most cases, designing and managing trading systems) is pretty small. I just did a search on efinancialcareers for jobs with the word 'quant' in them. About 1600 results came up. I then filtered by trader, and only 140 survived the cut. And quite a few of those were 'trading' jobs, not 'trader' jobs; i.e. execution analysis for example.

spectastic said:
but my understanding is they focus almost exclusively on micro time frames and arbitrage opportunities.
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So your second error is assuming that 'quant traders' focus excusively on the high frequency space. Again that is incorrect. Most high frequency firms are small and employ only a handful of people. There are a few large firms, not many. Ranged against that are quant behomoths like AQR, Rentech, Man Group and many more, all in the $10bn+ AUM range, each employing over 100 'quant traders', and all mostly focused on non HFT trading. And that's just simple maths; HFT can't employ large amounts of capital compared to slower strategies.

spectastic said:
There are other automated systems that trade on larger time frames, but those are no different than hand traders, except the executions are done without human error, provided they were programmed correctly. I'm probably wrong, so please correct me.
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Yes you're wrong, and I would be delighted to correct you. There is automated and non-automated trading. There is systematic and discretionary trading. These distinctions are not the same. So we have:
  1. Automated Systematic trading
  2. Non-automated Systematic trading
  3. Non-automated Discretionary trading
(of course we don't have 'automated discretionary trading' because you cannot automate discretion! And there are shades of grey here)

All HFT trading has to fall into the first bucket. But at large firms it might be that a trading system makes all the decisions, but some or all of the execution is done 'by hand'. I have friends who run systems in Excel, and then hand trade the positions. It doesn't matter. The important distinction is between trading systems and discretionary trading. The method of execution is less important. If you have a fund manager making discretionary trading decisions, and then using a sell side algo for the execution, ultimately it's still a discretionary trade (since the algo has no discretion).

Having explained that, are slower trading systems 'no different from hand traders' which to make it clearer I will translate to 'no different from discretionary traders'? They are different in many key ways, and the existence of many large quant funds running these kinds of system is evidence of that.

spectastic said:
And because the market is a zero sum game, if the big banks are hiring theoretical physicists from mit to help them make money, then someone else has to lose. So my question is who are the losers? Is it always retail traders, more specifically day traders, or are the quants competing against each other, and hand traders are by and large isolated from them.
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Finally, let me answer your question. The HFT space is to an extent a zero sum game, because the overall improvement in the market which some other posters have talked about is absent. So anyone who executes a trade is effectively paying a tax to the HFT traders. But this is no different from the tax paid to old fashioned market makers and floor specialists 30+ years ago (and actually, for smaller traders things are better because spreads have narrowed, even though for larger traders there is probably less depth in the book). It's a reward for providing liquidity (games with order flow and latency aside). Most people who are making money in markets are mostly earning risk premia, and the HFT guys are no expection.

GAT
 
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