In this post, we are going to explain Quant Trading or also referred to as Quantitative Trading.
Over the last decade, there has been a dramatic number of changes in the financial markets and the phase of trading. The traditional flaws of marketing have been replaced with electronic trading platforms.
Most of the market participants and stock exchangers now rely upon mathematical computations to identify trading opportunities. This number-crunching, trading analysis strategies are what we call Quantitative trading.
Price and volume are the two essential inputs used in quant trading. These inputs are intellectually used by the Financial Institutions and hedge funds to carry out large transactions which involve purchase and sale of hundreds and thousands of shares.
Quant trading is nearly becoming a common tool nowadays used by each and every individual investor. Perhaps it’s the high-frequency trading and statistical arbitrage that give this computerized trading techniques an advantageously acceptable perspective.
Example Of Quant Trading
Let’s take up a fair example of a trader believing in momentum investing. The trader opts to code for a simple program to pick out winners during an upward Momentum in the market. Now, when the next market upturn will arrive all these programs will be a resource full enough to buy the stocks. This sets up a fair example of quant trading.
Quantitative trading involved various parameters of Technical and fundamental analysis which helps out in picking a complex mix of stocks designed to increase profit rates. These parameters apart from increasing profit rates also prove to cause a great amount of advantage to the market movements.
Advantages And Disadvantages Of Quant Trading
Quant trading techniques are among the finest to work out any trade-related processes. It illuminates a whole new world to traders where computers automate the monitoring, analyzing and trading decisions.
Where a typical trader could hardly manage a limited number of trade, quant trading emerges as an epitome which effectively calculates the optimal probability of executing a profitable trade. Business isn’t done with emotions. Be it fear or greed too much of emotions imbalances the rational thinking required in trading.
But machines, on the other hand, does not possess any kind of emotion. Thus computers and mathematics are the two crucial factors that make the quant trading the effective most.
Moreover, even if quant trading proves to be a blessing it has its own disadvantages as well. Our financial markets are counted among the most dynamic entities that exist. Therefore, it’s also necessary for our quant trading models to be dynamic enough for staying consistent. Many traders develop models that achieve success and proves profitable but only on a temporary basis. The models ultimately fail when the market circumstances change thus ruining our whole economic activities.
Quant trading has become the modern era strategy for any successful investment. This trading system allows retailers to compete with large institutional quant funds and carry out ideal risk management without facing many negative outcomes. Quant trading provides significant advantages to traders. It is thus exploited by the retailers to gain a better understanding of the markets and helps in improving its consistency.