Saturday, February 11, 2012

What Is Quantitative Development?

Nowadays, the market has become high tech and humans have been replaced by the computer programs. For example, high frequency trading is the new face of trading system in which trades are to be entered using some computer programs. This not only changed the overall look of the market but also added quality to it. There are many advantages of high frequency trading such as lower trading costs, low discrepancy in price as well as increase in market liquidity. Additionally, it also helps in reflecting the value of commodities as well as stocks in a better way. Undoubtedly, it has reached the places where humans can't.

Day by day, use of quantitative trading strategies is on the rise. The strategies quest for alpha leads to optimal strategies that can be simple or complex. To compute the trade trends, all these strategies take the volume and price into consideration. No matter why the stock is rising, it is able to track or trade the scenario using particular mathematical formula. The main categories that are used are momentum trading and mean reversion.

In momentum trading, the analysis of historical data is done which helps in finding the pattern and comparing it with the current price. It also looks for trend that is growing rapidly at a high rate. The mean reversion technique helps in establishing a statistical relationship between current prices and the statistical trend. Reversion price means that the current price will return to its earlier advanced stage.

For a human, a close vigilance on the entire market and its changing trend is quite difficult. To combat this problem, algorithmic trading technique is used. It also helps in transacting a large number of orders at a very fast speed. Thus, the high frequency traders give tough competition to the other traders. This technique clearly represents that the high frequency traders earn more profit than the traders who have slower execution.

The quantitative trading investment technique exploits some sophisticated and highly advanced traders. Mainly, people with immense expertise in math, computer science, statistics and physics are apt for achieving the quantitative development. The algorithm that is used for quantitative trading looks for some repeated patterns with the help of vast databases available for trading. Additionally, data accuracy is the most important factor for determining results in the quantitative development.

Thus, market has experienced high growth with the use of high frequency traders. In the beginning, traders experienced fall in the total growth but later on it was replaced by an enormous growth.

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