Short introduction: I started working in finance as a quant developer (C++ / Java) some 12 years ago, left the field some 2 years ago and now I do software development in an unrelated industry (still C++ / Java as programming languages). I live in Eastern Europe (allright, Romania) and finance jobs are quasi-nonexistent here (not that there are many finance jobs in Europe outside London anyways).
I keep learning and especially researching on my own, I'm specialized in options. I did pricing, volatility and risk calculations for both arbitrage and market making while employed but that well has dried out at the fund where I worked so traders left and I was doing more and more general IT and practically no quant stuff. So I left too, I can do general IT outside finance quite fine, thank you (I'm better payed now actually) and got rid of the intellectual property claim on the work I do outside my job.
So now as a side project, I keep trying to make it on my own. Got a data subscription (EOD quotes), I've implemented my own backtester (in Java) using this data, key concepts are "strategy" like say iron condors and "model" like say Black-Scholes with various tweaks (for an example of such tweaks I can give you a link to an options pricing model I published during my math PhD). I also wrote an auto-trading software (also Java) for my Interactive Brokers account (for now running on just $10k, the minimum required to open an account with them). So when rarely something works in backtests, I'm promoting it to "staging", the paper trading account of Interactive Brokers. That's as far as I got, apart from placing some actual trades manually out of boredom, since so far I haven't found a model / strategy combination to work in a live environment. Well, I'm on to something but it'll take more time and time's an expensive resource.
Job is 8 hours + 1 hour lunch break, commute is one hour each way so when I get to work on my options trading stuff, I've already burned through 11 hours of physical and mental energy. Not much left to invest in my project, certainly not at an aggressive pace.
While I haven't entirely given up to the idea of getting another job in finance, competition on available jobs is so fierce compared to general IT that there's no point considering I've got any chances. Plus most of the "finance" jobs are really web services / general IT stuff anyways, and getting one of those wouldn't help at all with my prospects of making a breaktrough in profitable trading, but would again tie my hands with the IP clauses in the contract.
But one does not have to "work in finance" to work with finance. Like I said, slow but steady, I do it by my own. And in this whole world, I presume that I'm not the single guy who does that (quant background, doing own trading or at least attempting to ).
So here's the idea. If other guys out there who read this message are in the same boat as I am then you know that beating the market is no easy task. Can be done but requires a lot of work (and smarts), there's a reason why profitable hedge funds employ more than one quant researcher. So why not try the hedge fund approach ourselves? Let's associate and work together!
Here's the precise definitions of what I mean trough "associate and work together":
1) We're all employed and having jobs outside of finance (so we have a reliable source of income and there's no conflict of interests).
2) We're all bringing significant knowledge capital to the table. Quant background, industry experience and most importantly the determination and resilience to succeed on our own. It's not just skin in the game, we *have* to win this game if there's to be any skin. Or something along that, I'm not that good with parables
3) Most importantly, we bring *money* to the table. Sweat equity alone doesn't cut it, there's nothing like hard money when you need to make proof of commitment.
4) Since we're investing real money (hate the word "losing" but till this business turns into a revenue source it's a cost center), there's gotta be both a stop loss (time to draw the line and call it quits) and enough confidence that it won't be reached because the business will become profitable (much) earlier.
5) And the business is a plain old fashioned hedge fund. We need to research and develop profitable trading strategies and initially we'll run them ourselves on Interactive Brokers accounts. Once the hard part is solved, getting trading capital won't be a problem. Heck, at $50-100k of our own, the business should be at least self-sustaining without the need for monthly ca$h injections. Take notice, the hard part is producing those strategies, you gotta be "almost there" and aware of the benefits of having associate researchers for generation of independent ideas and reviewers for the products of your own mind.
I'm thinking on $1000 / month, 5 associates, grace period of 3 years (speaking of "almost there"). That's $5000 gross per month, 16% equity for each of us and 4% left for potential angel investment but don't count on it, you can only control what *you* are paying, not what you're selling. I'm saying 16% equity since there would be 6 of us, one lucky bastard gets to work full time on the other 5 guy's money in the LLC that we're all getting an equal part of.
$5000 per month (gross) is enough to make a living anywhere in the world, definitely anywhere in Europe and it's not necessarily to have the hired guy living in New York or Palo Alto. Also it requires the hired guy to put real skin in the game, if he's just for the money, there's a whole wide world to get a better paying job if he's competent.
There would be issues of trust and competence when entering an association, but that's too forward thinking, let's say I have a hunch that I won't get flooded by guys wishing to join this wonderful setup.
So what do you think? (I.e. let the trolling begin )