Trading Firms

CaffeineLover · May 25th, 2016, 6:08 pm

I recently became aware of trading firms like Quantlab, Jump Trading, Engineer's Gate. They tend to be small firms with small (or no) websites.Who are their clients? Do they have traders or do they simply sell proprietary trading strategies (or both?) Are they involved with asset management at all?

nicka81 · May 25th, 2016, 7:39 pm

Jump is a prop trading company, they have no clients and trade for their own account. They are very successful but have been keeping low profile. I believe Engineer's Gate has some investors and they want to go the hedge fund road. Not sure about Quantlab.

CaffeineLover · May 25th, 2016, 7:48 pm

That's really interesting -- starting a company that trades on its own capital must require a truly, truly TREMENDOUS amount of capital, especially in light of the fact that you're probably paying your quants and programmers 150k - 200k a year. Plus a mission-critical IT framework. I can't even fathom how a company like Jump Trading gets the capital to do all that.So I take it that Engineer's Gate is similar except they're just now starting to accept investor dollars.

nicka81 · May 25th, 2016, 8:00 pm

Jump does mostly HFT. People in HFT are usually paid based on results. If you don't produce PNL, sooner or later you are out. It used to take very little capital to do HFT. Now with all that technology and idea competition between shops it requires more but not a tremendous amount. Jump has been in this business for a very long time, they have certainly accumulated sufficient funds. Some of the new startups in the business indeed can struggle to cover the costs.

nicka81 · May 25th, 2016, 8:04 pm

The essential difference between prop trading and asset management is that some quant strategies do really well but don't scale and others don't do closely that well but scale much better. People that have the second type of strategies usually sell them to clients and go the asset management route: collect as much capital as possible, charge a management fee and hope for a decent performance. People that have the first type of strategies go the prop route: they trade for their own account.