The difference between programmatic trading and algorithmic trading and quantitative investment

There are many different terms in the market now, including programmatic trading, algorithmic trading, quantitative investment, high-frequency trading, statistical arbitrage, and so on, these terms mean similar but still have different points, this article explains the various nouns:

1. Programmatic Trading: Program Trading

A simple literal meaning means that you use the program to trade. Specific trading opportunities, trading positions, Stoploss and Takeprofit profit criteria may be included in the program itself, or may be independent of the program itself, the program itself is only the way to execute. The transaction corresponding to the program is manual trading. The general use of program trading has several advantages, such as faster speed, out of the influence of human emotions, executive power is guaranteed and so on.

It is also important to note the differences between trading procedures and trading systems. The trading system is a complete system, and the specific execution of the program may only be part of it. A good trading system should also have the content of risk control, capital utilization, position management and so on, not just the production of trading signals.

2. Algorithmic Trading: Algorithm Trading

means that your trading decision is based on one or more algorithms (algorithm), and the algorithm is the basis for your trading (trading logic). The algorithm itself is very diverse, difficult to generalize, common has the average price as the benchmark Vwap, through the fixed time interval execution Twap, the trend follows the momentum trader and so on, if you make up a macd,rsi what the produce indicator of something, can also be reluctantly called algorithm. Algorithmic trading can be performed either manually or purely automated. If you use a trading program to execute, it is programmed algorithmic trading. Most algorithmic transactions are now implemented programmatically, as mentioned in the last article.

3. Quantitative Investment: Quantitative investment

Generally, it refers to the investment which is determined by mathematical tools such as probability and calculus to study the structure of various asset prices in financial markets. The most representative is the long term of the former flourished capital Management, the title can be Google's own. Quantitative investment in the mathematical ability of the investor requirements are very high, so the general purpose of quantitative investment funds and investment companies are like tricks, physics and other science PhD. The general quantitative investment involves more complex mathematical models, as to whether the validity is benevolent see.

4. HFT: High frenquency Trading

This means that each trade is only a short interval from opening to closing, typically ranging from more than 10 minutes to a few microseconds. The main purpose is to profit by short market price fluctuations. Whether the trend follows the trade or the carry trade, as long as the speed achieved can be called high-frequency trading. Manual to achieve high-frequency trading standards is difficult, so it is generally through the program trading: Set up the algorithm, the strategy is executed by the next order software. In order to achieve a competitive speed also requires hardware and software co-ordination. High-frequency trading now accounts for about 60% to 70% of electronic transactions in the US market. This is a winner takes all game, so in the end everyone is competing for hardware facilities, competing with Exchange co-location to gain a few microseconds of advantage.

5. Statistical Arbitrage: Statistics arbitrage

Statistical arbitrage is a kind of carry trade, which means that the arbitrage opportunity is discovered through historical data statistics and tries to profit from it. For example, historically, the price ratio of maize to soybeans (corn price divided by soybean price) has been maintained at a certain interval, assuming the interval is between 1 and 5. Past historical data show that so far only two corn-to-soybean price ratios have broken through 5, and have quickly retreated to normal intervals after the breakout. Now that the corn-to-soybeans ratio in the market has suddenly hit 5 again by 6, as a statistical hedge, you're likely to want to sell this ratio (sell corn to buy soybeans) and expect the rate to return to normal intervals quickly. If the ratio really falls back quickly to 4 or 3, then you can get a handsome profit by closing your position (buying back corn and selling soybeans).

Of course this is a superficial analogy, the actual market is more complex than this. How to determine the right arbitrage range, how to determine the best arbitrage ratio (a few hands to a few hands), there is no seasonal impact, there is no possibility of the impact of emergencies and so on, all need to take into account the scope.

There is also the difference between arbitrage and hedging, arbitrage generally means 0 risk or very low risk, for example, you buy the same products traded on different exchanges, for example, the purchase of Shanghai Copper to sell London copper, or buy soybeans in recent months, sell far-month soybeans. Hedging means you're simply reducing your exposure through relevancy, for example, you buy rubber and then sell copper for hedging because the correlation is quite high.

The difference between programmatic trading and algorithmic trading and quantitative investment