News broke today that CloudQuant allocated $15 million to a non-employee, crowd researcher using its platform. Thus begins what I think is one of the most interesting, innovative, disruptive and game changing market trading concepts.
Somewhere in the United Kingdom, a professor with a day job now has had his strategy tested by CloudQuant’s platform and attracted a $15 million dollar allocation. That account is now traded by a professional with high frequency trading skills and a focus on best execution who is working on an agency basis to trade the algorithmic strategy for CloudQuant.
The professor does not enter any orders, but does confer with the trader from time to time. He did not have to raise any money, become a partner in the firm or register with any regulator. In return for his idea, he does get to share 10 percent of the profits the strategy generates.
We don’t know the results of this equities strategy, but we do know that it has at least a 2.5 Sharpe ratio, a profit per share of 2 cents or more and a win rate of 66 percent or more. Those are the standards CloudQuant representatives told me they look for from the strategies submitted on their website.
Crowd researchers from over 130 countries have visited CloudQuant and used its platform to test a strategy. And here is the disruptive part. Anyone, anywhere, connected to the internet can submit a trading strategy and potentially get an allocation from CloudQuant.
Funding of the strategies so far has all been internal from the owner of CloudQuant, the Kershner Trading Group. Others on Wall Street also want in on some of this new alpha concept and outside money is part of the equation. QuantConnect, Quantopian, Numerai and Quantiacs are just a few looking for great trading ideas with potential funding or jobs given.
Kershner, founded in Texas, has been trading stocks for 20 years and started at Nasdaq as a SOES trader. It has offices in New York, Chicago and Austin, Texas today.
The strategies CloudQuant is looking for today are strictly equities and ETFs. There is not options trading yet, or futures trading. Futures trading is more likely to come first, CloudQuant says.
So who can participate? Anyone with a trading strategy that could be traded in a spreadsheet with a few macros. Anyone who can do that can learn the basic Python programming to be able to submit a strategy.
CloudQuant is a getting fresh ideas from this crowd research. Too many times strategies on Wall Street are oversubscribed as traders move from bank to bank and hedge fund to hedge fund. Finding something new and completely different is the goal here and CloudQuant says it has found and produced strategies with zero or negative correlations. One recent submission getting vetted by CloudQuant is from a sophmore in college who is working on a strategy in between classes and studies.
An allocation like the one given today, should it meet in real trading what it did in testing, could produce up to $200,000 to $300,000 for the strategy architect. That beats many starting salaries, to say the least.
In short, this opportunity represents an innovative way to start a career in the markets, for anyone, anywhere in the world. A crowd research analyst does not have to have earned a degree from Harvard or some other brand name university. They don’t need to even be in the US. They don’t have to be hired at a global bank or hedge fund in order to get their ideas funded. And they don’t have to spend a year getting coffee for some senior trader who holds their future in their hands.
More disruptive though is that this setup does not require capital from the crowd researchers. Capital flows back to them, to their home country, something that is alway easier to accomplish than getting capital out. Of course, these crowd researchers could keep their earnings in U.S. banks too, assuming their local laws allowed.
Freedom of movement of intellectual property is the key. CloudQuant wants to be known as the trading strategy incubator. With their data inputs, including alternative data sets that would be excessively expensive for researchers to access, CloudQuant holds a unique position in the markets. Their approach to data use is more economical.
Are you looking to start a career in trading? Or jump start one? Or are you between jobs? There is now a way to see if your strategy has the stuff to measure up and get the next allocation.