With the financial technology’s industry leaders gathered today in San Francisco at the Finovate Spring conference, browser-based algorithmic trading platform startup Quantopian is taking the next step toward letting the curious individual investor take on Wall Street’s best and brightest. Having previously only allowed paper trading on historical data sets, the company today launched paper trading on live market data sets, as well as a limited pilot of its Live Trading product.
Ultimately, Quantopian users will be able to test and refine their trading algorithms via paper trading on live market data, and with the flip of a button turn those same algorithms loose with real money at stake via the Live Trading product.
This seamless integration is key, and also rare in the industry, with most institutional-grade products demanding that algorithms be rewritten between the paper-trading and live trading environments. In addition to being an overall pain in the ass, this structure also introduces additional technical risk in that it’s easy to make an error in rewriting the algorithms. Quantopian has bridged the gap between idea and execution better than any consumer-facing product that I’m aware of.
“Anyone with a mind for finance and a knack for development should be able to put their ideas to work and reap the benefits of quantitative finance for themselves,” Quantopian founder and CEO John ‘Fawce’ Fawcett says. “Through paper trading and the Live Trading pilot program, we’re making it possible for quants to put their money where their minds are.”
Quantopian users looking to develop algorithmic trading strategies can begin by accessing the platform’s 10 years of historical market price data. Those interested in incorporating other securities or data sets such as commodity prices, currencies, short interests, obscure indexes, and derived trading signals can use its Fetcher product to import any external data set into the platform. Quantopian can clean, normalize, and sort any time-series and comma delimited data set, regardless of its source.
When Quantopian launched, the idea was to make a simple yet powerful product that opened up the world of quant-trading to engineers, mathematicians, and statisticians not working on Wall Street. And while the company has generated considerable interest among this audience, it’s been equally well-received among current professional traders looking for a quick and easy way to test trading concepts or trade personal assets outside their work.
One of the more interesting aspects of Quantopian is its opportunity to create a community around quantitative trading within which market participants might one day share ideas and strategies. And while the company has yet to monetize, one concept put forward by its founders is to create a marketplace where entrepreneurially-minded quants can offer access to their algorithms or proprietary data for a fee.
The use of Quantopian’s first-party data and paper-trading tools in algorithm building and testing will likely be free forever, according to its founders, but the company will likely eventually charge a subscription fee or implement transaction fees around Live Trading. That said, Quantopian is not a broker dealer and has no plans to be, which limits both its monetization options and its exposure to regulatory risk. Rather, the company integrates with the APIs of several popular online brokerages and routs trades through them without having to manage customer accounts.
Fawcett and his team – now seven strong – began developing Quantopian 19 months ago and raised a $2.1 million Seed round from Spark Capital and GETCO in January 2013. The Boston-based startup faces little competition currently in the consumerization of quant trading market and has managed to strike up cooperative relationships with several large brokerages and first-party market data sources.
To the extent that consumer-facing quant trading becomes a big business – anything but a sure bet at this stage – there is ample opportunity for competition from any financial services company that makes a living by charging clients fees for managing their money. By the time this becomes a reality, however, Quantopian is likely to have a significant head start in both product and community development, as well as market awareness.
Given this, Quantopian’s biggest risk appears to be that the universe of potential quant traders is relatively small. After all, it’s not like “Joe the Plumber” is likely to develop an algorithm that considers how fluctuations in the price of the crude oil and in the Brazilian unemployment rate impact the price of three month Euroyen futures. Additionally, curious individual investors have a variety of alternative investing platforms to choose among, including Motif’s popular thematic trading product which now has the backing of Goldman Sachs. Existing quant-trading communities such as QuantConnect also have the potential to either challenge or foster the Quantopian platform depending on the type of relationship the companies choose to create.
For the startup to build a massive business, it either needs to gain a disproportionate percentage of this limited consumer market, or to continue attracting Wall Street and eventually implement enterprise-grade features with the associated hefty fees.
Quantopian is leveraging trends toward online social networks and cloud computing to turn what was previously a secretive and resource-demanding industry into one that’s accessible to any smart and curious individual. Today’s early version of the platform is just a fraction of the longer term vision laid out by the company’s founders. Whether they can continue to execute on this vision, and attract a sufficient audience to do so profitably, remains to be seen.
What’s clear, however, both at this week’s Quantopian booth and throughout the Finovate conference, is that innovation around the category of individual investing is incredibly healthy right now.