Background: 2 engineers with ML background. We started learning/building algorithmic trading strategies 5 months ago with the goal of launching a fund. Our algo is very conservative/opportunistic meaning the base premise is to conserve existing capital then jump on a buy/short when criteria is met. Algo generates ~32% compounded annual returns in backtestes since 2004 and has done 14% since July (2019) in live trading. We’re continuously optimizing it but I think our v1 is ready for a $ raise. Next steps, advice?
You think blind can help you on this. Go to wallstreetoasis.com
Just joined it, thanks!
See, blind actually helped.
Read flash boys
If you have a winning strategy why not go all in with your own money. The next step is to find investors that will give you more capital, a full hedge fund will require a good deal of overhead. A lot of strategies can break down when you try and do it at larger scale. Even jumping from 100k to a mill could change how your algo performs as your ability to make bigger trades at the same price point diminishes. So, grow slowly with small rounds.
Thanks for your reply. I put in my own capital into fund in July and more in August. Live trading is running on $200k as starting cap.
Ya, I would get a lot more friends, Family, and angel money. The legal and compliance aspects create a lot of overhead for a hedge fund. For instance you could need a series 3/7/65 and/or be registered with sec and perform filings, etc... Not to be a hater, but 32% annual returns sounds way to good to be true. High chance you will hit a snag with scale or get smoked in market scenarios you havent worked into your model. Make sure you have plenty of stop loss code in place...
Make sure you put a lot of effort into risk management. There should be multiple fail safes. Then, you should work on developing additional independent strategies. The market is already fairly efficient and it’s likely that any pattern you found hasn’t been exploited yet because it’s too small to be worth it to larger investors, and so it will stop working if you put in too much more capital.
Hey! :D The main algo is actually specially designed with risk management in mind as I didn’t want to lose own capital, so I went overboard with covering loses. In the backtests, we were actually doing 48-56% annually and monte carlo sims we had scored really good on the win/loss rate. Then I wanted to go overboard with protecting my cap and reduced take profit/draw down. It’s very modular, we made about 35 different algos in the past 5 months and took different aspects of the best ones and tested/optimized into the main one.
I mean things like what if your VM fails? What if there’s an outage of that region of your hosting provider? What if the logic in your main algo fails for some reason, there should be a failsafe that cuts it off after losing too much money too quickly.
In terms of setup you'll need an LP ideally in Delaware and LLC where ever you are.....you'll also need to register the LP as a foreign entity in your states otherwise banks won't work with it....after that you'll need to choose a Prime Broker....Goldman has a good offering but their minimum is 10M alternatively you can use Interactive Brokers as your prime broker if you at least have 1M to invest.... Get the series 66/67 cleared, setup the structure that you work for the LLC and the LLC is the investment advisor to LP and charges a fee for the services provided....all the investment funds live with the LP / prime broker. If you and all your investors live in the same state then you don't need to register with SEC and use the blue sky rule otherwise register with SEC and I forgot what that form is called.... If you don't have investors then your prime broker can also introduce you to the fund of fund and other first loss capital providers... Good luck and buy me a drink when you start making tonnes of dough
Also SEC is only for stocks and options, if you plan on trading currency, community or futures then you'll also need to register with CFTC....
Hedge funds are interested in strategies that scale to billions of dollars. They don’t waste time making 30k a year let alone 3m.
Hey there! We’re trading S&P 500 stocks that fit the criteria to buy/short. So “extremely” liquid companies, we’re also not allocating 100% into one company. Hypothetically speaking if all 500 companies met the criteria, we would hold all 500. In real time it’s diversified, so it’s holding 38 companies at this given moment. It wouldn’t have any problem scaling to $2-3 BB.
I dont think you know what hedge funds are looking before but good luck, you’ll get there
Don’t start a hedge fund. There are tons of firms that will seed you and set you up with infrastructure, etc without you having to do all the insanity of a regulated offering. Get a referral to Jump or Tower or one of a dozen other firms that will back you.
Could you elaborate? Just trying to get a better understanding of this option.
Network your way over to an intro at one of the couple dozen Chicago firms that will back traders. They will all have different options in terms of P&L split, what you vs they pay for, who takes first losses, etc. Depending on arrangement you will either become a partner in their LLP or you will be a 1099 but in either case you will own your IP. Another option that is similar is to get backed by a family office. FOs will have more patience for longer term holdings and worry less about you putting up super high Sharpes but you need to be able to accept more capital (not the $50MM+ necessary for HF economics to work but bigger than the few hundred thousand needed to make the prop shop route work)
There's a few books and articles on this topic, I don't remember the tiles but Google is your friend
Tech Industry
15h
2477
Google giving meals. Meanwhile Amazon L8 “don’t take more than one fruit”
Fitness
14h
912
how can i loose 5 pounds with small changes to lifestyle
Working Parents
18h
2599
Is it true many Indian couples are in sexless marriage?
India
Yesterday
2793
Dating for Marriage is Hard
Health & Wellness
18h
1395
Quitting Sugar
Nice.