Hi guys, just wanted to get some of your feedback on this one. Say there's a hypothetical PhD student who comes up with a nice short term strategy, tests it and it is pretty robust. He and another guy find an investor and form a temporary LLC to check it out in practice. They do it for a pre-set time period, and it works. Now, there seem to be two pathways from here. The investor is willing to put in several mil of his own and contact his afluent friends for more etc. Or the LLC members can somehow package it (e.g. into a software) and sell it. If, given circumstances, the second route is opted, what do you recommend? The strategy is not very complex in terms of implementation, but it involves screening all the universe of stocks once a day to find the plays. It's relatively simple to carry out and can be either automated or done manually. Once it's explained, it's pretty obvious and there's a danger that a potential buyer can steal it, unless it's packaged into a software that hides what goes on inside. What do you recommend for the software choice? Who can be contracted as the datafeed supplier? Are there firms that do such programming solutions and don't pose the threat of stealing the ideas? Thanks for your advice and help.
Rather than re-invent the wheel as far as charting, data feeds, etc. goes, just build a DLL for a software application like Wealth-Lab. Wealth-Lab has a built-in stock screener. This way you only have to focus on the application specific logic. Check out www.wealth-lab.com and they have API documentation. Similar interfaces into other charting software is also available, although off hand I don't know which ones have built-in stock-screening capabilities.
If you have a system that works, why in the world would you want to waste any time selling it to other people? Surely you can make more money by simply trading the "working" system.
Thanks, I'll check it out. I'm currently using tradestation, I think I might be able to have smth programmed to run on it. Although ideally it'd be platform independent. They also have some screening capabilities that I might be able to use, but they sort of suck. I've noticed on a few occasions that they seem to use a subset of stocks only and don't seem to adjust for splits as fast as I'd like.... Thanks again.
Age old answer (in the form of a question) - why would anyone with any invention sell the idea instead of making the product himself? A firm that already has the resources etc might able to leverage those and would be willing to pay more than the profits to you if you trade it youself. Secondly, even if they pay a little less than it's woth, for some it may be better to take the money and move to developing other systems, already in the pipeline. There are also other circumstances... There's also the risk aversion. A large firm is better diversified since it's not the only thing they are doing etc. I was expecting a question like this one. Third answer - let's say you might need some green sooner rather than later, even if that involves a discount.
... also, trading any system takes time and resources. The profits for someone might be maximized if the system is sold and energy is spent on developing others. The amount the system can make is not unlimited. Once the positions gets large enough, the trades will have too much price impact.
some questions to ponder: 1. do you not want to trade for yourself? (not enough capital base, not enough confidence, etc) 2. are you allergic to trading other people's money? (performance pressure, drawdown, etc) 3. do you REALLY want to be a VENDOR? 4. will I be getting a bulk-mail advertisement from you anytime soon that I can file away in my "Round File"?
1. No, I actually like trading very much. Capital base is not a problem, as I mentioned, we can get infusions in the future. Confidence is OK too. 2. There is some performance pressure, I agree. That's probably the aspect I dislike most. Especially since it's not like we are a long term hedge fund which might not have to report anything for weeks. In our case, there is bit more monitoring I'd say. 3. Not at all. We might be able to find a fund that would be willing to buy the system as an exclusive deal (no other buyers etc). I wanna spend more time on my research currently. 4. Nope, I'm not looking for buyers here, just advice . We can find those locally. I don't think there'll be a problem once they see the results.
http://www.wired.com/wired/archive/2.07/wall.st_pr.html The story is about some rocket scientist type geeks who created a trading system. They are using it to trade for wealthy clients and are NOT selling it. If you have an edge, the opportunity is limited. If everyone traded that strategy the profit would evaporate. Trade it yourself, don't sell it.
Dude, I can make cash elsewhere too. I'd rather get the present value of future profits now and work on other stuff, rather than lose the potential income from other venues b/c of time and energy spent on trading just one system.