Friday, January 16, 2009

Algorithmic Trading Technology Update

Lately a number of new (at least to me) technologies useful to the algorithmic trader came to my attention:

1) Matlab2IB API

I said in my book that it is difficult to use Matlab as an execution platform. As Max has pointed out, this is no longer true. This inexpensive API connects Matlab to your Interactive Brokers' account. It allows you to retrieve historical data, get real-time quotes, and send orders. In other words, all the basic functions you need to create your own execution engine.

2) R

Many people (hat tip: Steve H.) know that R is an open-source (i.e. free) alternative to Matlab. I find that there is also an API that connects R to Interactive Brokers, though I have not tried it myself.

3) Trade Ideas

Trade Ideas (hat tip: Russell M.) is a complete automated trading platform that provides connections to different brokerages (scottrade, IB, TD Ameritrade, etc.)

4) Amazon EC2 cloud computing platform

Running out of PC's to run your myriad strategies? Try Amazon's EC2 cloud computing platform. For a modest hourly fee, you get access to an instance of either Linux or Windows environment, and you can add as many instances as you want. The connection speed is supposed to be at least 10x T-1 line, well-suited to high frequency traders . Here is some other performance benchmarks.

Monday, January 12, 2009

Hedge funds move to "easy-to-understand liquid strategies"

See this interesting article (registration required) on FT on the state of the hedge fund industry. Paul Tudor Jones, Citadel, and Fortress Investment Group are all said to be moving to "easy-to-understand liquid strategies", otherwise known as "statistical arbitrage".

(By the way, I have been urging traders to do just that in my book.)

Friday, January 09, 2009

How is the job market for quants these days?

Felix Salmon claimed in this post (hat tip: J. Rigg) that the quant job market is alive and well. However, I haven't heard much from the usually diligent headhunters in the last few months, which doesn't bode well. Maybe some of our readers can comment on the current state of the quant job market?

In that same post, Felix wondered whether to incorporate the extraordinary period of 2008 as part of backtesting data. Actually, I don't see much of a problem here -- of course one should include 2008. The only reason a trading model would have performed poorly in 2008, as opposed to 2006, 2007 or 2009, would be that its parameters are fitted too tightly to historical data. If you try out some parameterless trading models like I advocated, 2008 is not that unusual except for its higher volatility.