Quantitative trading is being increasingly used by the Wall Street firms. Many Wall Street firms hire Maths and Physics PhDs who are then required to develop mathematical models for predicting the markets. A few quantitative trading strategies include high speed trading, algorithmic trading and statistical arbitrage. Watch the video below that explains the basics of quantitative trading. You should have a mathematical and a programming background if you want to become a successful quant trader.
The stock market crash of 2008 has been blamed on the quant traders. Their mathematical models caused the market to behave in unexpected and highly volatile manner. When you have the power to buy and sell millions of shares with just a click of a mouse, you are bound to cause volatility in the market. When there are too many quants doing this, expect the market to go haywire.
Read this article-Recipe For Disaster: The Formula That Killed Wall Street. This is an excerpt from this article: “For five years, Li’s formula, known as a Gaussian copula function, looked like an unambiguously positive breakthrough, a piece of financial technology that allowed hugely complex risks to be modeled with more ease and accuracy than ever before. With his brilliant spark of mathematical legerdemain, Li made it possible for traders to sell vast quantities of new securities, expanding financial markets to unimaginable levels.
His method was adopted by everybody from bond investors and Wall Street banks to ratings agencies and regulators. And it became so deeply entrenched—and was making people so much money—that warnings about its limitations were largely ignored.
Then the model fell apart. Cracks started appearing early on, when financial markets began behaving in ways that users of Li’s formula hadn’t expected. The cracks became full-fledged canyons in 2008—when ruptures in the financial system’s foundation swallowed up trillions of dollars and put the survival of the global banking system in serious peril.”
You should also watch the interview of a quant trader below!
This video documentary exposes the quants totally. Watch it!