I have a system, now what
- Thread starter dude_03
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My experience is that "intellectual property" in quantitative trading is worth very little, since everyone is doing more or less the same stuff. You should also reasonably expect that your strategy will decay as time goes on and so will the value of your intellectual property. The more straight-forward and liquid is your asset class, the quicker will be the decay of your strategy. This is especially true if you have been in the business for a couple years and most probably doing things that are pretty obvious.
My advice (take it with a brick of salt, obviously) would be to either go and talk to some established PMs that might take you on as a quant/trader hybrid or talk to a proper firm that would fund you (depending on your asset class, there might be many or few). For the first options, if what you are doing is semi-consistent with your current experience, the value of the move (say first year or two) is going to be about break even and then it's going to be up to you. For the second one, you will eat what you kill, which might be good or bad depending on the quality of your strategies and your mental makeup.
The fact that you have read about famous quant blowups does not mean that every quantitative trader fails. Percentage-wise probably much fewer then general public that tried themselves at trading. Definitely fewer then people like yourself that can't even interpret the delivery schedule for a futures contract.
I attached numbers to above 4 statements by sle. All 4 are very true. I attest to them based on my experience! It takes time to develop non-obvious IP in trading. Decay factor is also pretty significant. However, you are on the right path. I would say, put in 1-1.5 more years and you will have developed multiple strategies by then. I was reluctant to write all the below, but for your benefit:
Few yrs ago, when I was starting out in this business I pitched my first strategy to couple of senior level people for seeding me with their personal investment. I was very reluctant to share any information other than possible risk and rewards and basics of strategy, because of fear of sharing my edge away. 4 yrs down the line, I am broadcasting my OK level strategy signals trade by trade on C2 - which is a retail website
Would you like to know why this transformation?? First, I value a semi-stable source of income as an independent trader. Also, I have discovered a lot of edges over the years, I have realized people will trust my model enough to trade 1-5-10-20 contracts on it, but no one is going to lever up and trade 1000 contracts based on my model. I am constantly developing new stuff (my current rate is one new stuff every 3 months). I have realized most of my work in first couple of years was stuff that is well known to seasoned profitable quant traders. And finally, good long term edges also deteriorate with time.
So, what happened to my first edge. Well, developed on 8 yrs of FX history, it worked well for 11 months OOS, and then went nowhere for next 9 months. After those lean 9 months, it has been working again consistently for last couple of years. It stopped working for 9 months and I had not shared it with anyone!
So, net net my advice is - get over the reluctance of sharing your IP and go ahead and pitch it to some quant fund or within your bank. Even if they don't hire you and steal away your idea, it won't hurt you much in the long run.
My only advice is refuse to share any stuff with a junior guy - associate types. With an associate, you have a much higher probability of him trying to steal your idea. Share in detail when you meet one of the MDs. The odds that the MD steals your idea and doesn't hire you is pretty small, imo. If he likes your stuff, he will hire you, otherwise you will get feedback why your stuff needs improvement! Good Luck.
I agree with point 2, point 1 and 4 I think it's a possibility, but it's hard to tell.
Point 3 is interesting. If on one hand it makes sense, on the other it doesn't: somewhat you would expect liquid asset classes to be so heavily traded that it's quite hard for them to radically change behaviour. But I guess it really depends on what kind of behaviour you are looking at...
On the contrary, it may take less for some inefficieny to disappear on some less traded asset class
And complimentary to this, I would expect to find smaller inefficiencies on heavily traded instruments compared to those less liquid.
Bear in mind that those are only theories that just came to my mind reading your comment, so don't go invest your house in a penny stocks pair trade.
Don't underestimate fees and technology costs. Forget the amateurs who can't even make a profit and think they are rockstar if they can actually print black. If you are pro you can easily have a bad year because you didn't make "enough."
Same reason why even after massive bonuses people stay in the business. I suggest you think about the advantage you currently have and once you give it up it's going to be hard to get back in, at least if you need to.
Same reason why even after massive bonuses people stay in the business. I suggest you think about the advantage you currently have and once you give it up it's going to be hard to get back in, at least if you need to.
I think quant trading IP is valuable.
Otherwise why is it impossible to find out what RenTech is doing,
or why were the turtles bound to silence for so many years
and as soon as they started talking their stuff stopped working,
or why Goldman sued the russian guy that stole their HFT code?
Unfortunately if you posses such IP but not the resources needed
to apply it, then you are in a weak negotiating position with a partner
that would bring in such resources (capital, infrastructure, flow etc.).
Unless you can go it alone, you may have to share or give access to such IP
to be able to pull any dollars from the markets at the end of the day.
Actually, most people in the industry know what RenTech is doing, plenty of people came and gone. I will note that there is a big difference between "public" and "published" - plenty of stuff out there is public but have not been published.
Everyone is doing more or less the same thing - the strategies are fairly apparent and it's the details that make a difference. No matter how you try, sooner or later people figure out what you do, either re-invent it or by confluence of various tell-tell signs and tangential information (what you traded when, draw-downs etc). The only aspect that could make a strategy more or less unique is if it's located in an intra-mandate space (e.g. if you are doing something between equity and fixed income).
The Goldman suit was more about the labour to market issue (actually stealing code) then intellectual property, it was connectivity and messaging code, not that strategies/models.
If IP was really that valuable, why would you be in a weak negotiating position? If you are essentially a machine that transforms coffee into money, every would be willing to open the doors.
I was referring to original research as valuable,
something that is not yet "public" knowledge.
The weak negotiating position comes from the fact that once revealed,
there is no way to protect an original strategy.
While it is true that many that play the alpha zero sum game (more like
negative sum game after all the middle men get their pound of flesh) will open
the door for you, understand that once all your cards are shown, your leverage
is gone. Many operators once they find a way to run your strategy without you,
would not think twice before opening the same door for your way out.
Maybe we are coming from difference perspectives (my background is BD and IB prop desks)? My expererience shows that usually IP is pretty much worthless without the provider of the "I". Once someone is gone, the strategies that he used to run are either dropped right away or slowly decays, unless there is a junior that is ready to step into his shoes (that I've seen numerous times).
The main feature of a good systematic trader is that he knows how to tweak existing strategies and build new ones, not in the invention of the holy grail. The only real time when intellectual property is worth protecting is when you are talking with someone who is doing exactly what you are doing (e.g. when I am talking about volatility strategies with other volatility traders) - you don't want to reveal the underwear of the strategy.