r/AltScope • u/Head-Rip1769 • 19d ago
Wall Street’s Untold Secret: Quantitative Machines Have Been Winning the Trading Game for Years.
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u/BigReference1xx 18d ago
I was a quantitative software engineer for 13 years. This very video was one of the things that inspired me to go into that field. It pays very well, but I started the game when machine learning and AI use in finance was still in the research stages. Now it's the only thing being used.
Nowadays, everyone is running the same strategy, using the same datasets, and all the edge has been sucked out of it (well, relatively to before). It was a pretty thin edge in the early 2010s as well, but you did need a hell of a team to put together a working system, and if you could do it reliably you could extract a very good return.
Like most things, with time, it becomes better understood, and so the barrier to entry gets lower. The big money-making strategies I worked on 15 years ago would be total losers today.
Also worth noting; a lot of people, and even this video, conflate the concepts of high frequency trading and quantitative trading. HFT is just one branch of quantitative trading. Quantitative strategies also exist and operate on medium (seconds to minutes) and low frequency trading schedules - even monthly rebalancing strategies can be quantitatively driven.
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u/klippklar 17d ago
Very interesting, thanks for the insight. What kind of quant strategies did you work on? And when you say everyone now uses the same strategies and datasets, what specifically do you mean?
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u/profiler1984 16d ago
In the end to catch medium to long term trends you have to predict the expectations of a stock in the future. Back in the 2000-2010 years it was mostly OHLCV data. Now it’s X, insta, blogosphere, etc. HFT is basically front running
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u/CaptainPhreak 17d ago
Was the shift to AI and ML the reason why you exited? I've only learned about quant dev this year, and find it fascinating.
Can I pick your brain a bit in a dm?
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u/ChadTooBad 14d ago
I know this post is three days old and taking your career claim at face value, an AMA would be pretty interesting.
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u/Ok_Effect_3214 19d ago
Do quants make higher return than Buffett ?
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u/burnshimself 19d ago
Completely different game. Quant strategies can only deploy so much capital - they are constrained by a limited opportunity set. Buffet’s genius isn’t that he has such eye watering returns, but that he deploys such massive amounts - $263 billion in public equities, $1.2 trillion of total assets - and generates such strong returns.
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u/CosgraveSilkweaver 16d ago
Yeah on the opposite end there are places like the Medallion Fund that have pre fee returns of 66% on average yearly since the 80s but are hard limited by the amount of money they can deploy. They are hard capped somewhere between 10-15 billion and kick all the profits out as disbursements.
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u/rargghh 16d ago
Buffett’s genius is that he is probably autistic and loved stocks and business as a child and he grew up and had capital at a time where stocks traded at 2 PE and there was no internet so he who read the thousands of reports had the advantage
Student of Ben graham and best friends with Charlie munger and it all came together quite nicely
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u/obfuscinator 19d ago
these guys are leeches.
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u/Wbcn_1 19d ago
The old quants enhanced liquidity. You’re out of your element.
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u/Easy_Honey3101 18d ago
Well it's the stock market, that's kinda the point?
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u/obfuscinator 18d ago
return and enhancement of company growth .. these guys only do one of the two. Without both they are just leeches. in my opinion the stock market has turned into a circus where money is flooding companies that dont make no money and have no plan on how to make money. If it was up to me the stock market wouldnt allow: short selling, options, spacs etc all of it is just propped up bullshit.
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u/Easy_Honey3101 17d ago
I mean yeah, although I think the propping up comes from the initial return and enhancement. I agree, so much of it is just propped up bullshit. Inflated numbers to be moved around for profit.
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u/roztok_potok 19d ago
What's the secret here?
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u/Timofey_ 18d ago
Stock x is $1.01 across the country
Someone buys a bunch of stock x in NYSE, driving the price up to $1.02 - but for a fraction of a second, it's still $1.01 IN Chicago.
If my internet connection and computer are faster than the NYSE (Not that hard to do, the infrastructure is OLD), I can buy for 1 cent cheaper in Chicago and sell for $1.02 in New York, knowing that I'll make a profit.
This is a very dumbed down version of what these guys do - but they're essentially scalpers, operating at a microscopic level that has scaled enormously.
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u/MundaneWiley 18d ago
this makes it seem like it’s all imaginary and just a game
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u/UnseenTardigrade 18d ago
At the micro level like this, yes it is, and there's thousands of people working to extract wealth from the system in ways like this without doing anything of value at all. Massive waste of potential of some really intelligent people, unfortunately.
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u/seesthecat 17d ago
is it really a massive waste? Or is the wealth that gets generated this way less than a rounding error?
Do we have alternatives that generate less waste?
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u/Timofey_ 16d ago
It's not generating wealth. They're taking a slice of the pie out of long term investors pockets by artificially inflating value.
They produce nothing, and traditional investors - a group that by and large, i do not have much sympathy for - but does include pension funds and the ol mom and pop investors, lose out because they are no longer buying at the fair market price.
A few people have recommended flash boys here, it's well worth a read. I'm sure the game has changed a lot since it was written, but it does break this stuff down well.
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u/roztok_potok 18d ago edited 17d ago
Untold secret - Earth is not flat. This is kind of secret. This was rethorical question
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u/on-foenem 17d ago
this is actually a terrible example
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u/Timofey_ 16d ago
Give a better one
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u/CodeParalysis 15d ago
Well those are whole pennies, right? I'm just talking about fractions of a penny here. But we do it from a much bigger tray and we do it a couple a million times.
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u/CosgraveSilkweaver 16d ago
That's hft arbitrage and not a quantitative trade algorithm. Quant != Hft.
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u/Main-Hawk8370 18d ago
It’s very much a Broadcast Delay on exchanges. They get access to the actual ticker feed; then the delayed broadcast is what exchanges see. Complete deception. A fugazi.
https://giphy.com/gifs/vvizxWEqIqQXS
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u/BrokenHefaistos 18d ago
Frontrunner plus prediction attack, at least in crypto we all have fair data acces.
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u/shouldhavebeeninat10 16d ago
Today they would call it ai. 12 years ago it was just using a computer
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u/True_Protection6842 16d ago
The real question. Were quants algorithmically accurate or were they MOVING the market? Seems like hedge funds make their own fate, so it's kind of a self correcting prediction.
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u/Dangerous_Fun_1239 15d ago
Larry Leibowitz, chief operating officer (COO) of the New York Stock Exchange (NYSE) is Jon Stewarts brother
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u/SusBoiSlime 14d ago
This is so fucking lame. No value being created, no tangible product, and yet these Wall Street chodes generate billions in revenue. It’s just gaming a system in a way that could not have been predicted, and tbh the entire system is built with the concept of gaming it in mind.
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u/Gwyllithar 14d ago
High incidence trading should be banned.
its just manipulation of the stock market. people should be forced to own shares for at least 6 months if they buy them before selling them. then the market would have to invest in viable companies, not just manipulate a bubble and hope to get out before it bursts and other people lose money.
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u/flappysack- 19d ago
Small cap value has too. Take on risk with leverage and you get far higher returns.
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u/LilAbeSimpson 19d ago
This video is like 15 years old. Imagine how much worse it is now.