New to investing

[migs]

Hello!

I would like to become an algorithmic trader and start trading with my own account.
However, I am new to investing, so I believe it is better to begin investing without algorithms.
The main reason is that I believe one needs to have a substantial initial balance to trade algorithmically.

What's your opinion?

Also, trading 'by hand' will somehow change completely the type of strategy, that means I would look at fundamental analysis or some more traditional strategies.

Is that in any case a valuable experience to show to potential employers at quantitative hedge funds?

 

[Berk Torun]

Investing and trading are almost completely different worlds. Investing mostly requires you to hold on to your position for at least a month depending on your investment strategy, exposing yourself to volatility/risk for a long time to achieve high returns. On the other hand in trading your position is typically for several days only (sometimes even less than a day). In the world of trading you rather hope to minimize your risks (especially if you are a bank instead of a quantitative trading hedge fund) because in short-term positions world is more chaotic, correlations make less sense and even very small volatility can wipe out your leveraged position.

Because these are different language games, the fundamentals traders and asset managers look at differ significantly. There are quants working on asset allocation which is a long-term strategy and probably they have to be familiar with some of the fundamental approaches used by long only asset managers. In quantitative trading, I am sure experience in traditional trading would be an asset. But they are much much more interested in people with machine learning, signal processing background because the roles in those companies are very technical. That is why you see often in job ads that finance experience is preferred but a PhD in Computer Science, Applied Math or Machine Learning is required.

 

[migs]

I've a PhD in experimental Physics (no heavy-mathematical-theoretical) and I was thinking to self-study programming and finance. In the mean time I would like to apply in the markets what I learned. The only problem is that I think it is difficult to do algorithmic trading with a small account because it involves many trade per day, and you are going to pay a lot of commission fees. Am I right?

 

[Berk Torun]

If you want to learn corporate finance and fundamental investing, just take courses on Coursera. They are not that hard. You just have to spare time to listen to videos. You can watch them in subway etc. If you want the best 1 hour summary, watch this

I can recommend Nassim Taleb's books to learn about trading. However that is not sufficient of course. Best way of learning trading is opening an account and trading on your own. In time you develop that 'gut' feeling you can't really explain anyone else. You can't do algorithmic trading on your own. Algorithmic trading is done mostly at the institutional level. Hedge funds have DMA system installed to execute orders systematically. What you can do is building a data analysis tool to help your trading decisions but that is nowhere like algorithmic trading.