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ALGODEAL: new horizons for retail quant traders?

March 31st, 2010 · 17 Comments · Backtest, Software

Recently came across ALGODEAL, which aims to provide us, quant traders, a platform to backtest and implement live automated trading strategies, as well as access to institutional money. This appears to be a promising development in the world of retail quant traders.

algodeal

Quant Fund Management meets Crowd-Sourcing

In an adaptation of the web 2.0 model, the company aims to leverage the content (quant strategies) provided by their users. In order to attract these quant users, AlgoDeal do provide you the following:

  • Free backtesting software: their proprietary java-based MarketRunner
  • Free infrastructure: computer grid to run backtests and optimizations and low-latency data/exchange connectivity
  • Free clean historical market data: covering 80 futures markets
  • Access to institutional funds

And in good ol’ 2.0 fashion, this is still a beta platform…

The Business Model

The access to the software, infrastructure and market data is completely free; but the guys at AlgoDeal are not running a charity for hedge-fund-less quant traders…

For each backtest you receive a scorecard with each metrics evaluated (CAGR, Sharpe ratio, MaxDD, etc.) and a final score. AlgoDeal selects the best scoring systems and allocates its clients’ funds to the selected strategies.

This is done via a legal agreement that ties you for a fixed-term, but the ownership of the strategy remains yours.
And you get paid: 10% of the strategy profits (which would amount to 50% of the variable part in a typical 2/20 fee arrangement).

Techie’s corner

So you’ll need java if you want to use AlgoDeal’s platform. There are 2 options, you can either edit the strategies directly on the website or download MarketRunner and run it in your favourite IDE (the only real viable option..) such as Eclipse, etc.

The whole grid aspect is hidden from you: it should just mean that the backtests and optimizations that you submit online should be parallelized and run faster.

Regarding the execution side of things for live trading, AlgoDeal have entered into an agreement with QuantHouse to provide fast access to markets (proximity hosting, exchange connectivity with proprietary fiber optic network, etc.).

Finally, the historical data is all continuous contracts, rolled automatically (no mention of what rolling algorithm is used). They currently only provide daily data going back from 1999 but expect to go down to 1-min frequency in the coming months.

Beta version

This is still a beta version and as a result things are still moving. AlgoDeal have a published Roadmap on the site which lists coming improvements over the next 3 months, such as risk management, improved money management, multi-strategy systems, etc.

The beta tag also means that this is not yet a final, stable release. One example of this last night: I could not get to run one of their canned quick start examples, simply getting the message:

Something went wrong! some backtests failed

However, the developers do seem to be responsive on the forum they maintain (they also communicate through their blog). There is also a fair deal of doc available.

Free invites

This beta release is by invite only and new registrations seem to be closed for now. However I contacted AlgoDeal directly to request a special “blogger” invite, which they kindly obliged. They also mentioned that they would allocate 100 invites for you, my readers:

We can allocate an initial set of 100 logins to referrals from your blog, once they have left their email on our website ask them to send an email to support@algodeal.com with in the subject line “On behalf of Jez’s blog”

Note: for the record, I am not associated with AlgoDeal in any way and I am not getting anything out of these invites. I just thought that sharing these might be of interest to you.

First impressions

It is obviously not as sophisticated (yet?) as a “proper” backtesting platform such as Trading Blox, and I only played with AlgoDeal and their simple canned examples on the online editor. I assume there will be lots of progress and improvements in the coming months, before their proper launch (Q2 2010?).

I think the real selling point for serious quant traders is the “easy” access to institutional money, provided that the platform is flexible enough to implement “sophisticated” strategies. I am not sure whether long-term Trend Following strategies are the best way to get selected on this platform (backtest market data only goes back to relatively recent 1999, typical higher return volatility might be an issue, etc.)

In any case, this is a “free” way to get access to a large quant fund infrastructure and capital raising without the hassles and headaches that come with setting up your own fund or working for one (and looking a much better option than covestor, KaChing or collective2). I do not know how much external capital AlgoDeal have secured for fund allocation, but each strategy could be allocated between $100k to $10M, and the 10% share of profits makes it potentially an attractive proposition.

A platform and space to watch…

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17 Comments so far ↓

  • Damian

    Here’s the question – who owns the strategy?

  • Jez

    From what I gather on their website “the ownership of the strategy remains yours”

    I believe you sign some sort of legal agreement with AlgoDeal to authorise them to have exclusive use of the strategy for a fixed term. When the term expires you are free to do whatever you like with your strategy. I seem to remember the fixed term being for 2 years…

  • Erik

    Thanks for digging this up – it is a very interesting service offering. Maybe the possibility of reasonable profit sharing will attract some quality strategies, but I’m skeptical, since other similar ideas have not worked out so well. See the Marketocracy Masters 100 mutual fund, for one example (MOFQX).

  • Ben Filippi

    dear au.tra.sy readers,
    thanks for all the invitation requests sent today. We will process them before the week end .
    As you will see on our support pages, the turnaround for new features is currently very short. Tell us what you think ever good or bad and what you wished we offered.

    We take your comments very seriously, the product is yours tell us what it should be.

    Ben

  • Suhendro

    Sounds great! Will give it a try for my 8 mechanical trading system. Thanks for the information Jez!

  • tito

    Interesting biz model: another attempt at crowd-sourcing alpha generation.

    Sounds like they own the strat (if they have the code, good luck defending your IP) and 90% of the profits, so it would only seem to make sense if you can’t scrape up more than 10% of what they’re willing to trade. Or if their development tools and data are superior to what you have access to.

  • NordicTrader

    …which is exactly the case I’m in at the moment, using cheap second-rate software like ProRealTime for backtesting/market screening… I Think Algodeal has a good business idea, for them at least, even though I completly agree with Erik. Quality strategies should go elsewhere.

    Anyway, I signed in. Good luck to algodeal with my not-so-ideal strategy sets, which are turning in a modest 1%of equity / month with relatively high potential drawdowns. :)

  • tito

    You raise an interesting point. Since they are taking on the risk for you, a strategy which eats tail risk might be a good match (for you but not for them). Writing options or some kind of low-frequency mean-reverter would have this characteristic. Ideally, you make money for some good stretch of time before the tail-risk kicks in and the whole thing is lost. Sort of the CDS model that brought down the US economy… now available for retail investors! ;^>

  • benjamin filippi

    tito,

    just to clarify on the profit sharing. We do not pocket 90% of the profits. The money comes from investors, they get the chunky part of the return.Like any fund we charge the classicl 2% mangement fees and 20% incentive fees.

    As for IP I would encourage you to read http://blog.algodeal.com/2010/02/trick-or-treat.html , I know I will have to spend a lot of time justifying our business is not about your code but giving our investors access to a large set of strategies and you to their deep pockets..

    As for the fat tail strategies, never said we will accept any strategy… Rule number 1 in hedge fund management, protect capital then try to add returns on top.
    Easy to say not always to achieve, we will do our best to respect this.

  • Josh

    Read the fine print located here:

    https://beta.algodeal.com/media_1.1.5/terms/terms_en.pdf

    “ALGODEAL, a limited liability one-man business with registered capital of 100 Euros”

    huh? that sounds fishy….

    They also reserve the right to reject strategies submitted to them that are significantly similar to strategies they already have in development. That makes sense, of course, but what is to prevent them from stealing your strategy, claiming it was an idea they already had in development, and capturing that 10% profit for themselves?

    I’m not trying to say that they would NECESSARILY do that, but what prevents them besides their promise to act in good faith?

  • Josh

    Benjamin,

    Just to clarify,

    I don’t intend to attack you or your business. I think people need to be aware of what they might be getting themselves into. I fully understand that you couldn’t possibly offer non-compete agreements , considering how many naive, public domain strategies that will probably be submitted (and rightfully rejected).

    Personally, I would be interested if you had a second strategy review option. Perhaps an applicant could submit their backtested return stream in Excel. There could be a back and forth exchange of increasing disclosure and negotiation until an agreement is reached.

  • benjamin filippi

    josh,

    regarding the capital we waited our AMF agreement ( French SEC ) before increasing the capital. We obtained our visa mid march and have the obligation to capitalise the company at the level of 600k euros before mid June. well spotted !

    Regarding the 10% distribution all the investent vehicles we create ( funds or manage account ) will be audited by a one of the big four’s. You can visist http://support.algodeal.com/faqs/financial-considerations/quant-fees

    As for the upload of a trade file to start negotiating I will look into this.

    Ben

  • Josh

    Ben,

    Thanks for the clarifications.

    Are there specific types of strategies you are looking for? Ones you aren’t? Does your software support the ranking of stocks on fundamental factors?

    Sorry, lots of questions.

    Josh

  • AlgoDeal Could be a Big Deal in the Financial Revolution » The Online Investing AI Blog

    [...] to watch. In fact, a lot of people are already watching AlgoDeal. Jez Liberty wrote a post about it here. MQL Magazine wrote an article about it [...]

  • Benjamin Filippi

    Josh,

    our platform is only opened on futures for now. Equities will come later this year. keep tuned…

    As for strategies we are opened to any idea, as long as it makes sense i.e. you can explain the nature of the arbitrage. I do not believe in strategies where the author cannot explain why he loses or wins.

  • Gavin

    Hello,

    I really like the look of Market Runner and will test it with some of my EOD and longer term strats.

    Do you have bar types available for Line Break or Renko charts? I checked the bar types listed on the apidocs section and could only see Daily, Fifteen_Minutes, Five_Minutes, Hourly, Minute, Second andThirty_Minutes.

    If you will be offering the other types of charts do you have a rough time frame for availabilty? I have some shorter term strats that I’d like to run through the back tester and optimiser.

    Regards,

    Gavin.

  • Jez Liberty

    Gavin – I suggest you contact Algodeal directly as I have no relation with them

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