How to Get Into Quant Trading

Quant trading can be easily be described as day trading performed by computer software.

According to Ernest P. Chan, author of “Quantitative Trading; How to Build Your Own Algorithmic Trading Business,” quantitative trading is securities trading with the buy and sell decisions based on computer algorithms. The algorithms are designed and often programmed by the traders themselves. This type of trading is often by financial institutions and hedge funds but can be done on a personal level.

Instructions

To Trade as an Investor

1. Research quantitative trading, strategies and risks. All financial investments have risks and a wise investor knows how to weight those risks. Algorithmic trading models are designed to adjust to market events such as what occurred on May 6, 2010, where stocks bottomed-out at 998.50 points within a five minute period. An investor must always know enough to either allow the software to continue making decisions or abort trading to preserve the investment. Join the email lists of major trading houses to become aware of educational events and seminars, many of which are free. Follow the company blogs to gain further insight and knowledge.

2. Practice initial trading on a simulator. Although the goal of quant trading is to allow computer software to make the buy and sell decisions, it is necessary to understand how the stock market works, and what outside political, social, and economic factors influence the market, to prepare software to make those decisions. A free online simulator such as offered at WallStreetSurvivor.com provides an information portal and a virtual game that is ideal for beginning investors. This simulator engages users in the learning process by offering real-world prizes in contests based on maximizing virtual portfolios.

3. Create or obtain algorithmic trading software. QuantLib.org is a free and open-source online library for quantitative finance, and the project offers free software with packages for a variety of computer operating systems. QuantLib notes that the software is written in C++ with a clean object model. One does not need a thorough knowledge of the C++ programing language, but can learn the hacks and snippets of code to make coding changes by actively researching QuantLib forums.

Tips & Warnings

• If the thought of programming is too intimidating, and the greater interest is for the hands-on and real-time platform that quant trading offers, proprietary software is available for purchase. In addition, some of the major trading houses offer advanced software, such as Fidelity's ActiveTraderPro. Although this software is clearly designed for active investors who wants to get elbow deep in investing themselves, it includes advanced features to customize options and “set order triggers for stocks and options based on price movement of stocks or indices.”

• Another way to get into quant trading is by working for investment institutions. Most operations will probably require not less than a bachelor's degree in finance or in information systems, depending upon the desired position.

References

• Quantitative Trading; How to Build Your Own Algorithmic Trading Business; Ernest P. Chan
• CNN Money: Glitches Send Dow on Wild Ride
• StockTraingToGo: Learn to Trade Stocks Risk Free
• QuantLib: A Free/Open-Source Library for Quantitative Finance
• Fidelity: Active Trader Pro
• Fidelity: Active Trader Pro – Advanced Order Types
• WallStreetSurvivor: Learn For Free. Win in Real Life.
• Mark Joshi: On Becoming A Quant