Starting an investment business

Discussion in 'Business, Careers & Education' started by NameBack, Oct 19, 2011.

  1. passingtime

    passingtime Senior member

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    Have you factored in fees and slippage? Those can kill you if you are only trading low volumes initially.
     


  2. NameBack

    NameBack Senior member

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    Yeah, it's factored in. We're over-estimating fees, actually. Assuming $14 flat roundtrip, probably gonna use IB and pay more like $2/$4 roundtrip on test fund.
     


  3. NameBack

    NameBack Senior member

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    We might want to tone down our margin estimates, though. We never hold a security longer than three days, and the security it's built on is SPY, so the likelihood of margin calls is pretty low as long as we keep leverage reasonable. Also shouldn't incur margin interest at most places if we keep all positions to 3 business days or less.

    Additionally that means our short positions are also secured and won't be closed out early.
     
    Last edited: Oct 23, 2011


  4. StephenHero

    StephenHero Black Floridian

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    I'm glad you found a way to put your talents to use outside of DC. Good luck with it.
     
    Last edited: Oct 23, 2011


  5. NorCal

    NorCal Senior member

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    Well, rock on, and if it pays I expect a SF preferred membership in said baller fund.
     


  6. NameBack

    NameBack Senior member

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    Oh there will definitely be an SF preferred investor class. Reduced commission, all kinds of perks (mostly hookers, natch). Especially for fellow CE libs. :slayer:

    And first day of simulation went well, up 1%.
     


  7. BrianVarick

    BrianVarick Senior member

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    Very interesting, I would love to keep track of how everything is going.
     


  8. NameBack

    NameBack Senior member

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    New backtesting results, with a more consistent yield curve, and the decision to look at 3x leveraged ETFs as a trading option has made us decide to move up our real-cash test fund. We're now trying to get it started within a month. Turns out IB lets you margin on 3x leveraged ETFs, so we're going to be switching over. Between the lower transaction costs, higher leverage, and better model, our returns are looking much stronger.
     


  9. scientific

    scientific Senior member

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    so. two bumpkin amateurs, one a recent (reformed?) hippie/commie, the other a statistics phd student who is not alarmed by a perfect fit on his data, have discovered a trading strategy that beats all hedge funds ever, on their first try. stranger things have happened, but not many.
     


  10. Harold falcon

    Harold falcon Senior member

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    [​IMG]
     


  11. DaveDr89

    DaveDr89 Senior member

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    good point RE the perfect fit to the data. Portfolio optimization problems are well-defined and the hard part is the estimation of the inputs, viz., the covariance matrix and the expected returns of the universe of investment choices. How are you estimating the covariance matrix? If you are estimating it with the sample covariance matrix then that is a sign that you guys still have some homework to do.

    RE leveraged ETFs, hopefully you guys also know that these are only designed to be in sync with the advertised multiplier on a daily basis and that for longer holding periods they may be in the wrong direction? There is a lot of literature on this.
     


  12. NameBack

    NameBack Senior member

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    Perfect fit? Who said that.

    Edit: and to be fair, you're kind of a nutjob asshole who has held a consistent grudge against me from CE, so you know, grain of salt and all that.
     
    Last edited: Oct 25, 2011


  13. NameBack

    NameBack Senior member

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    Yeah, we're aware of that problem with leveraged ETFs. However, with our system we aren't holding anything for longer than three business days, so we anticipate any effect should be very very small.

    As for covariance matrix, you'd need to talk to my partner on that one.

    Edit: want to be clear on the issue of perfect fit -- the ground truth for our validation sets are usually somewhere in the 100,000,000% to 1,000,000,000% range. We are obviously not getting results anywhere near that, and we are certainly not getting perfect fits. We're getting decent fits that consistently offer solid returns in backtesting, but nothing even close to perfect. There's a lot of losses mixed in there.
     
    Last edited: Oct 25, 2011


  14. NameBack

    NameBack Senior member

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    If today's rally holds, we'll be up about 8% in the first four days of portfolio simulation. Not a significant sample size yet, of course, but nice psychologically.
     


  15. nootje

    nootje Senior member

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    Actually, it would be better for you if the first days/weeks were bad. Anyways, automated trades or trading signal+manual trade?
     


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