The dawn of the freelance quants
A new kind of Quants is taking over Wall Street. Alex is a 19-year-old sophomore. In-between his lectures he trades one million dollars in futures, or rather the trading algorithm Alex coded manages the money.
Alex is one of thousands of active “freelance-Quants” who developed trading algorithms for Quantiacs, a fintech startup located in Palo Alto. Quantiacs is the first market place for quantitative trading systems. Quantiacs connects user generated trading algorithms with capital from institutional investors. CEO and ex-Quant Martin Froehler is happy with the first 1.5 years in beta: “We have already 20+ systems with a live Sharpe Ratio of 1 and above. Remarkable is the low correlation of these systems to conventional investment strategies because of the diverse backgrounds of our Quants.”
Quantiacs offers a free and open source backtesting software in Python and Matlab plus 25 years of high-quality financial data. The framework makes it easy to build and test new trading algorithms.
Alex heard about Quantiacs from another student. A few weeks later he developed several trading systems with a Sharpe Ratio of 2 and above. Alex submitted his algorithms to Quantiacs to get investments.
Quantiacs simulates all submitted systems on live data to build their track record. Institutional investors can cherry pick trading systems, see their live performance, and invest in them. The algorithms remain a black bock and the developer keeps the IP.
“It’s impressive to see how many clever, data-savvy and creative people are out there. Although we are focusing on the US for now, we already have users from all over the world. This indicates how well our business model scales,” says Martin Froehler.
Quantiacs charges investors the industry-typical 20% performance fee of their profits but waive the 2% management fee. Quantiacs splits its income 50/50 with the Quant. This way, freelance-Quants like Alex can make money without investing their own money.