A very close relative of mine has continually railed against one of the core premises of our business plan, that is, the belief that we can extract enough actionable intelligence out of market data to provide us a strong enough statistical edge to create automated trading strategies that can extract consistent positive cash flow out of the electronic futures market.
To this unnamed relative, we will never be able to generate more computer horsepower than Goldman Sachs, and thus, we don’t have an edge.
I whole heartily agree that we can’t compete with GS in terms of speed and processing cycles. But I beg to differ when it comes to running trading strategies that make money.
This market, as I have explained ad nasuem, is not a zero sum game. If one guy makes money on a trade, it doesn’t mean the other side of that profitable trade lost money. He may have bought for 10 and sold it to me at 20 and I sold it at 20.01.
We all win.
To think that only those with software development budgets the size of an NFL team’s operating budget can make money is rubbish.
The larger shops are hampered by the amount of capital that they need to push in and out of each trade.
On the other hand, small shops, have low overhead, and if they can control their algos and IP, they can flit in and out all day with a small amount of contracts (e.g. ES < 200 contracts) and extract sizable profits.
So let the big guys deal with all of the regulatory, AUM, and IP property theft issues that they must contend with…I believe small is beautiful. They can’t compete with us….Good Bye Old Line Sailors.
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