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Quant analytics: Simple versus Complex Analytics

(Last Updated On: July 3, 2011)

Quant analytics: Simple versus Complex Analytics
Simple versus Complex Analytics
I am looking at both high frequency and conventional trading algorithms. Do firms use simple techniques and be successful or are they spending time on coming up with complicated techniques to get an edge
It depends what you are trying to accomplish. For instance, the relationship between price impact and market orders is non-linear. As such, implementing a limit order strategy that is a competitive automated dealer strategy that advantages the liquidity premium paid by uninformed traders while trying to avoid costs related to trading with informed traders is a complex task. It’s not a straightforward linear model that leads to a strategy that can beat gamblers ruin. On the other hand, high freq rebate strategies operated by major banks may be less complex in terms of cleverness, but more complex in terms of technological implementation because speed is the key determinant of profits. I think to extract alpha in highly competitive markets is intrinsically complex over shorter time frames.

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