Reddit reviews The Quants: How a New Breed of Math Whizzes Conquered Wall Street and Nearly Destroyed It

Quantitative Finance major here.

High Frequency Trading is insane. Everyone fights to shave off nanoseconds by putting their servers in the room as exchanges, orders are instantaneously cancelled in order to confuse other traders, companies have blasted through mountains in order to get perfectly straight fiber optic cables between point A and B. Order types complicated and predatory towards other traders. Goldman Sachs called the FBI on their own employee because he was suspected of stealing HFT code. On top of it all - the exchanges love HFT. More orders = more money. The exchange you trade on might pay you, or you might pay them but before your trade even gets there - a hedge fund or proprietary trading group might be paying to look at the order before anyone else.

If you're interested in the story, I highly recommend reading Flash Boys, When Genius Failed, and The Quants.

If you're interested in stopping whatever you're doing to learn how to develop machine learning algorithms and work on the street, PM me.

Not quite your goal, but: quant.

Renaissance mainly hires engineering/math/science PhDs to work on systematic strategies. They've made hires from people with backgrounds in subjects like NLP and information theory. Besides that, no one really knows what they do in their flagship fund.

However, in their equity fund RIEF (Renaissance Institutional Equities Funds ), they were actually very correlated with other quant equity funds during the quant crisis. You can see from this letter to investors that they were down 8.7% from August 1 to August 9th 2007
http://bigpicture.typepad.com/comments/files/renaissance_technologies.pdf

"While we believe we have an excellent set of
predictive signals, some of these are undoubtedly shared by a number of long/short hedge funds. For one reason or another many of these funds have not been doing well, and certain factors have caused them to liquidate positions. "

During August of 2007, several multistrat hedge funds were facing losses in their credit portfolios and had to sell off their most liquid assets which were their holdings in their quant equity portfolios. At the time, many quant equity funds were trading on the same signals so they all started getting hit with losses from other quant funds selling similar portfolios. This forced more quant equity funds to liquidate their positions, creating a sell off which affected all the major quant equity funds ( Blackrock SAE, AQR, GSAM Global Alpha, etc.)

You can read more about this in the book, The Quants:
http://www.amazon.com/The-Quants-Whizzes-Conquered-Destroyed/dp/0307453383

or from this paper:
http://web.mit.edu/Alo/www/Papers/august07.pdf

The Quants is a pretty good read.

I have two books here that I'm willing to part with, which you may or may not find interesting. Broadly speaking you might call them political, but more specifically they're both on the subject of politics and finance. Public economics, we might call it.

The Ascent of Money- Niall Ferguson

The Quants: How a New Breed of Math Whizzes Conquered Wall Street and Nearly Destroyed It- Scott Patterson

Let me know if these interest you.

>I don't understand what you mean by "derivatives are a better way of creating computer models for trading".

Let me explain what I mean by that.
I'm not trying to tell you what a derivative is, you already know that. I'm telling you, that a derivative, by its nature, makes it easier to create a computer model for trading.

As you say, there is nothing inherently wrong with derivatives, options are technically derivatives, but let's understand how computers have completely broken market based trading.

You and I can buy some stocks and fill out a portfolio, keep an eye on the market at opening bell, and go home when the exchange closes, having maybe done a few trades.

A computer can vastly outperform our ability to trade by its nature, but the safest way to trade is always going to be with a big pile of money, hedging exactly as much as is mathematically viable, and getting rich off the spread.

That's easier to do with derivatives. You can buy much bigger quantities of them, and they allow a much higher level of control when it comes to that spread. You can fine tune risk Vs reward in ways that cannot be done any other way, and that is exactly where hedging soars.

Ultimately it's like counting cards, at the biggest casino in the world, and thinking it's not having a profound effect on our current market is being blind to the ramifications of computer based trading.

I recommend this book to read more about what I am talking about:

https://www.amazon.com/Quants-Whizzes-Conquered-Street-Destroyed/dp/0307453383

exactly. For anyone else who'd like to look into this topic, be sure to read this book.

I would say HFT is long past frontier stage and is more mature than you realize, and is infact, very influential as is. In fact, in may 2010, there was a HUGE market crash that was primarily computer driven and the consulting firm Accenture dropped down to $0.02 when it's usually valued at $30-40/share and it was largely attributed to a cascading computer error.

http://youtu.be/TDaFwnOiKVE that's a good ted talk just to get your feet wet.

In fact, some of the best and brightest physics and mathmatics majors are recruited by wallstreet for this express purpose.

I liked this book
http://www.amazon.com/Quants-Whizzes-Conquered-Street-Destroyed/dp/0307453383/ref=sr_1_1?ie=UTF8&qid=1320701972&sr=8-1

This can give some insight as well.
http://www.wired.com/techbiz/it/magazine/17-03/wp_quant?currentPage=all

Finally
http://www.slideshare.net/davidbuechner/low-latency-fpga-based-hft-solutions. Keep in mind that most HFT shops are fairly mum about what they use and who they go to in order to maintain a competitive advantage. What you read and what's actually in practice is likely very different.

The two most recent books I've read on the topic:

Automate This

The Quants