Automated Trader Magazine Issue 32 Q1 2014
Who likes scrubbing up? Some people like cooking and pretty much everyone likes dining, but the prospect of scouring dishes and cutlery is generally not high on most people’s list. And yet, at the risk of food poisoning, it simply has to be done. It’s not a bad metaphor for the business of dealing with data. Quantitative analysts, traders and fund managers seem to love performing research, building models, and ultimately testing and implementing strategies. But what about that tedious chore of making sure the data is clean in the first place?
As we learned during a visit to a hedge fund office some time ago, data cleansing is one of the most fundamental and underappreciated aspects of running a good trading operation. So we decided to devote this issue to the theme of data hygiene and data quality.
In Eternal Sunshine of the Spotless Data (p 18), we speak to data experts, consultants, vendors and users to get a rounded picture of some of the pitfalls involved in the all-important task of making sure your data is as pristine as possible. Along the way, we get the insight of an author who has written a book about data cleansing and discovered something ironic -- the act of data cleansing itself can make your data dirty.
We also have a separate in-depth look at data standards, as we delve into an initiative that could be transformative: Market Model Typology (p 28). Inspired by a regulatory push, this is a truly industry-led solution to a vexing data issue. And it looks like it could have a huge impact on the consolidation, normalisation and provision of market data.
In our regular look at algorithmic trading in different locations around the world, we venture over to Sweden this time (p 36). It’s a country that both embraces and takes a cautious view towards high-frequency trading. We speak to the main exchange, the local regulator, an academic and several others to understand the business of high-speed trading, Swedish-style.
Our two main in-depth Q&A articles with prominent buy-side players both have a scientific theme.
In First Person (p 10), we hear from Ernie Chan, a man who trained as a scientist but for an unusual reason -- his distaste for commuting -- decided to become a quant. And he now has a devoted following eager to hear about his ideas for momentum trading versus mean reversion.
Meanwhile, in Me and My Machine (p 44), the men behind Systematic Alpha Management tell us how scientific techniques such as understanding wind turbulence can help them make money in today’s markets.
It’s another issue chock full of insights you won’t find anywhere else, and we certainly had fun putting it together. We hope you have just as much fun reading it.
- The accidental quantErnie Chan says it was not by design but by chance that he ended up in the market. As accidents go, it turned out to be a happy one. A theoretical physicist by training, he's also that rarest of traders who likes to talk openly about his ideas rather than keeping them secret. Ernie tells Automated Trader Editor Adam Cox about his research into mean reversion and momentum strategies and his journey from science to finance.
- Eternal Sunshine of the Spotless DataYou're only as good as your data. Whether it's pre-trade research or post-trade analysis, so much comes down to how accurate and how complete your dataset is. But cleaning and maintaining good data is generally not thought of as the sexiest part of being in the financial markets. It's a chore, the scope of which is often underrated and underappreciated. So Automated Trader sought to speak to a range of specialists to hear what they said about the importance of data hygiene.
- Why can't we be friends? MMT and the quest for data standardsIt's not every day that rival data vendors, venues and other companies gather round the table and agree to work together towards a common goal. But the rapidly progressing Market Model Typology (MMT) initiative shows that this kind of cooperation can happen, and the benefits are expected to be enormous.
- Stockholm SyndromeThe Swedish word lagom doesn't have a direct equivalent in English. Loosely translated to mean 'in moderation', it's basically all about finding the right balance. Lagom is something of a mantra for Swedes, who seek it in all aspects of life. So, as Adam Cox reports, it should come as little surprise that the concept of lagom appears to have been a guiding principle in the development of the Swedish marketplace.
- The scientific methodSystematic Alpha Management has been using cutting-edge trading techniques since 2001, some of which are based on scientific principles. Peter Kambolin, the fund's chief executive officer, and Alexei Chekhlov, head of research, talk to Automated Trader's Adam Cox about their methods and their experiences using tools such as the formulae used to understand wind turbulence in order to navigate the markets.
- Interactive Brokers: The API of Many FlavoursInteractive Brokers (IB) was at the forefront of API development in the earliest days of automated trading and now has thousands of individual and institutional clients using the various flavours of its API. Automated Trader's founder, Andy Webb, talks to Pete Spiro, Senior Programmer at IB, about the API and its users.
- Anatomy of an Algo: Managing News VolatilityTrading a stock on the same day it delivers a major investment update almost inevitably involves having to deal with volatility. Eric Krueger, Head of Electronic and Program Distribution, EMEA and Merrell Hora, Head of Equities Algorithmic Product at Barclays show how it can be successfully accomplished if armed with the right execution tools.
- All you need is alphaWhen Mark Wetjen was elected as acting chair of the Commodity Futures Trading Commission (CFTC), the first thing that occurred to us was George Harrison.