The quants run Wall Street now

Alexey Poyarkov, a former gold-medal winner of the International Mathematical Olympiad for high-school students, spent most of his early career honing algorithms at technology companies such as Microsoft Corp. , where he helped make the Bing search engine smarter at ferreting out pornography.

The Russian-born software engineer, who declined to comment, as did the hedge funds, had almost no financial experience. What TGS wanted was his wizardry at designing algorithms, sets of rules used to power calculations and problem-solving, which in the investment world can quickly parse data and decide what to buy and sell, often with little human involvement.

On many trading floors, quants are gaining respect, clout and money as investment firms scramble to hire mathematicians and scientists. Traditional trading strategies, such as sifting through balance sheets and talking to companies’ customers, are falling down the pecking order.

“A decade ago, the brightest graduates all wanted to be traders at Wall Street investment banks, but now they’re climbing over each other to get into quant funds,” says Anthony Lawler, who helps run quantitative investing at GAM Holding AG . The Swiss money manager last year bought British quant firm Cantab Capital Partners for at least $217 million to help it expand into computer-powered funds.

Guggenheim Partners LLC built what it calls a “supercomputing cluster” for $1 million at the Lawrence Berkeley National Laboratory in California to help crunch numbers for Guggenheim’s quant investment funds, says Marcos Lopez de Prado, a Guggenheim senior managing director. Electricity for the computers costs another $1 million a year.

Algorithmic trading has been around for a long time but was tiny. In 1988, the Journal profiled a little-known Chicago options-trading firm that had a secret computer system. Journal reporter Scott Patterson wrote a best-selling book in 2010 about the rise of quants.

Prognosticators imagined a time when data-driven traders who live by algorithms rather than instincts would become the kings of Wall Street.

That day has arrived. In just one sign of their power, quantitative hedge funds are now responsible for 27% of all U.S. stock trades by investors, up from 14% in 2013, according to the Tabb Group, a research and consulting firm in New York.

Quants have almost caught up to individual investors, which outnumber quants and collectively have 29% of all stock-trading volume.

Source: WSJ

Jr. Trader Stefan Panteleev

Read more:

• Fake news isn’t just a problem for the public, it’s a problem for algos
• Jim Cramer: “It was all about the rise of the machines.”
• RISE OF THE MACHINES or why automated trading could create problems down the line
• JP. Morgan: The next financial crisis will be Flash Crash
• Robo-adviser Scalable Capital hits $1.2 billion