Quants: Also known as Black Boxes. There is a great mystery surrounding these trading systems, an for sure they can create some tremendous volatility at times in the market place. Ever See a price get approached only to bounce very quickly in the opposite direction or continue very quickly in the same direction? Probably a Quant at work.
In this article I will attempt to clear up all the mystery surrounding Quants. A Quant is systematic trading discipline that humans create through rigorous research, this research is aided by technology and involves higher mathematics and formulate the research is thoroughly dependent on human beings decision making.

Quant strategies and traditional trading strategies which reley on human decision making to manage a portfolio day to day, are rather similar in what each do. The main difference is how the strategy is created and implemented. By carefully researching their strategies(In Theory) , Quants in theory are able to assess the risk of the portfolio much more quickly then a human trader. More on that in a moment.

Here in lies the problem, Not all Quants are successful. Evey decade or so Quant traders are the cause or are blamed for the cause of tremendous market volatility. The recent fat finger on Wall Street is a prime example! The second most infamous Quant was Long Term Capital management. The Firm lost 100% of its capital in the credit crunch of Aug-Oct of 1998. The main cause was the huge move outside the standard deviation models of internal model.
So Really a Black Box or a Quant is a traders strategy on computer steroids. Nothing mysterious about it. However they are very complex trading systems that cost millions to build. Certainly they are not $97.00 solutions that you find in the Retail Robot world!

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Original Article
For some new entrants into the world of retail Forex trading, many have unfortunately been wooed by the advertisements of Forex Robots. Lets list some of the Funny names below.

Pips4idiots

Forex Shockwave

Forex Bulletproof

Steal Pips

Forex Megadroid

The list goes on and on. As a matter of fact from what I see there is a new Robot out every week.

Each one claiming more outlandish Pip gains then the last. Of course you need to buy the Robot now, because it will be gone forever in a week. You know only 14 copies left. I am here to educate you and clear this matter up once and for all, if you just choose to listen with an open mind about Forex trading. I am a true insider that knows something about trading being a retired Chief Dealer, and I wish to share with you the true story about Quants.

A Quant is a bank or hedge-funds “Robot”, yes they do exist but a tiny(LOL) bit more complex then the ones sold in the retail market.

I can certainly guarantee that a smart marketer will read this article and put the Term Quant in his copy soon enough. I am sure he has never heard of a Quant and will not know what a Quant is ,but at least it will sound really good anyway.

Lets start off with perhaps a bit of clarity. One of the most famous and successful Quants was the “Quantum Fund” headed up by Geroge Soros.

What Is a Quant?

Excellent Question!

A Quant is an acronym for Quantitative Analysis. A “Pure” Quant Fund is one in which the computers do all the trading of currencies and securities. From what I was told, only about 15% of Hedge-funds are pure Quant Funds. No banks that I know of are Pure Quant Funds. Look at the image below of the dealing room. That Is a Human based group with the help of a Quant, more on that in a second.

UBS Tradingroom

In the other 85%, the trading institutions use a mixture of the computers order execution algorithms and human judgment of the traders.

The idea behind a Quant is very similar to the “sales hook” for the cheap and inexpensive Forex Robots. With some major exceptions. A Quant will by design seek out trades and they will not be swayed by emotion(A major issue, for retail traders,maybe the main one,they buy a robot because of.)and they will be faster then a Human without a doubt. However they are not employed because of Fear on the part of the trader. They are employed because they are part of the over all strategy of the trading institution. They are primarily designed to seek out trades that are based off very complex standard deviation models.

Forex trading robots will execute a trade for you, and they will do it without emotion. Certainly they will do it quickly, but here is the end of all the similarities, and here in lies your major problem.

DO YOU KNOW WHAT THE PROGRAM DOES?

IS THE PROGRAMMER A TRADER?

Remember computer will only put out what they are programmed to do. As the old saying Goes “Garbage In, Garbage Out!”

To put this into a better perspective, when I was trading at Banca CRT, NY(Known as UNICREDITO now.) We had “a team” of MIT computer geeks come in to help us design a Quant that would assess our over all Forex and Securities risk and peel some of that Forex and securities risk off as we deemed fit. The first point that they made clear was that it is people, not machines that are responsible for the important aspects of Quantitative Trading of the Forex and Securities market.

The Program itself is designed to implement those aspects. It will do so in a disciplined,methodological way with the speed of automation. In Forex and Security Trading speed is very important. However it is up to the Traders and their research department to select the universe of currencies and securities that the Quant will be in charge of.( Keep in mind each Currency and Security will have its own special algorithm its not a one size fits all.)

Traders are in charge of the design of the trading system that the Quant follows

(The Traders are the Wizards behind the curtain so to speak)

In implementing this tons of data must be cleaned so that the it can be used in a systematic approach. This costs millions of dollars as scientists must be called in to add the scientific approach to the trading discipline that the traders deployed. Can You see where I am going here?

You need to ask yourself,can a $97.00 “Forex Robot” program really be a Quant?

If you really want to learn how to trade don’t waste your hard earned cash on $97.00 robots.Get some good books on traders and trading. Seek out traders to coach you. Just do something that will make you the wizard behind the curtain.

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