In the latest sign of the growing popularity of quantitative investment strategies, proprietary trading and technology firm Kershner Trading Group’s CloudQuant technology platform is launching and licensing its first crowdsourced trading strategy.
CloudQuant, a trading strategy incubator that can be used by data scientists and traders around the world to create and then test their trading strategies, is licensing an algorithm developed by a U.K. based professor and crowd researcher using its platform. CloudQuant is allocating $15 million to the strategy and will pay the algorithm’s creator 10 percent of monthly net trading profits generated from the strategy.
Morgan Slade, CEO of CloudQuant, says the platform allows anybody to access the firm’s institutional-quality data and tools to develop unique trading algorithms on its web site.
“You have large corporations finding solutions to technology problems using crowd researchers. You have open source software that leveraged the wisdom of the crowds for years. Why not the hedge fund industry?” says Slade.
Once CloudQuant successfully vets crowd researchers’ algorithms through back testing and other methods, it then manages all the trading and execution and provides other support. CloudQuant licenses crowd researchers’ algorithms and pays fees based on the performance of the strategy.
“Talented researchers no longer have to work their way up on Wall Street. They can jump to the top by using our platform and get an allocation just like a portfolio manager at a hedge fund,” he adds.
CloudQuant is one of a new generation of quantitative ventures that is looking beyond established hedge fund professionals for new ideas, including Quantopian, backed by SAC Capital Advisors and Point72 Asset Management founder Steve Cohen, and Numerei, a hedge fund backed by Silicon Valley and run by a 30-year-old South African mathematician. Unlike competitors, Slade emphasizes that CloudQuant lets developers run their algorithms as a separate trading strategy. Numerei, for example, incorporates successfully crowdsourced algos into its own primary investment process.
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Slade, who was the global head of equity trading at Allston Trading, a high-frequency firm, and a portfolio manager in HFT at Citadel, says people from 125 countries have been using its tools. Slade emphasizes that the firm’s own data scientists and quant traders work closely with people using its tools, offering feedback and advice.
“We’re viewing this as an extension of our research department,” says Slade. “People in the hedge fund industry go from firm to firm and take their ideas with them. So there’s a lot of group think. We’re looking for an influx of new ideas.”
CloudQuant started soliciting users for the platform in the first quarter of 2017. The developer of the algorithm that CloudQuant funded started working with the firm three months ago. After two months, he requested funding, and CloudQuant helped him refine the strategy, Slade says.
