Visiting a quant fund

Two days ago me having a privilege to visit a CTA shop. Only one word can be used to describe the experience: super cool. There were like 10 people in a 10x10 meter room, each with only two monitors (not 8 like a traditional trader). One display market orders executed by their algorithms in real time, one is just coding and paper.

What surprised me the most was that everyone was nice. I thought they are the most secretive people on earth, but no. Every question I asked was answered nicely, in details. (Of course I didn't ask what strategy do you use). They told me about their experience. Everyone coming from engineer/physicist/programming/maths background. Hiring is through head hunter. They don't look for people from the banking world. In the office there are only two people wearing suits, one is a lady taking care of client. The other is like the CEO, bringing people together.

Oh and I see a black box for the first time. Quite big. Now I know why they call algorithmic trading: black box. The main technical tool that they used is signal processing. Strategy is momentum. The advantage of momentum trading is that when you see the market go against you, you close the trade. So less tail risk. For a mean-reversion strategy when market go against you (meaning the spread is widen), you keep betting more. So even mean-reversion might have consistent return during good time, it may suffer huge loss. Say the case of LTCM.

One lesson I learned. Coding coding coding. I need to learn this. The fund I visited use Java and Matlab. Another fund I emailed to ask use Python and Matlab. Another one I interviewed with use C++ mainly. Rentec of course is too cool for a mainstream language. They use their own one, based on C++. So summer time gonna be filled with learning C++.

Oh and one last thing. One has to be very careful looking at the performance statistics of a fund. Let's say fund A in year one has $10 million. Return 50%, which means $5 mil. Then in year two may be return 50% again which is another $7.5 mil. Since they are doing well in two years, investors start to put money into it. Say now the fund is $100 million. Managers of fund is more than happy for this, as they earn a 2% management fees no matter what. The banks advertise the fund A to investors are also happy because the track record is so great. So in the third year let say they lose only 20%. Overall the average return looks like 25%. No. Indeed in cash value the fund lost money. Earn 5mil, 7.5 mil then lose 25 mil. But that is the case for most of the CTA fund out there. So in conclusion, gotta be really careful reading the return statistics of funds. As most of CTAs lose money in term of cash.