Any of you paid for custom development related to options trading? Strategy backesting, volatility calculation, model validation, auto trading engines? So not a $50 monthly subscription for retail traders but the kind of stuff well capitalized hedge funds have (usually in-house software). Something of the order of $50,000 and above. Because my impression is that most if not all small and medium size hedge funds cannot afford such amount, so retail traders don't even appear on the radar. Main reason being not that a $100,000 software isn't more valuable than one costing 50 bucks a month. Problem's the value is not just in the software but also the users and small businesses just don't have the knowledge to leverage $100k of development into something profitable.
So let's put this in the form of a question, If I am an active trading desk would I rather have an inexpensive analysis and trading product as opposed to the "commercial" customized product I paid big $$ for(and monthly service fees) ? Of course. The big value would depend on the character of the desk/fund and keep in mind most desks already have a Reuters or Bloomberg terminal that they are not going to drop. Go look at Actant and Itivit and folks like that to see how you compare. For a real trading desk FIX access would be a plus. BTW this is the same answer you got last time.
Just to give you some reflection on cost of a proper platform. We had an in-house developed options market making platform... I think it was "valued" internally at 3 million or something... the cost was probably a lot more, since you need dedicated IT-staff to keep it running. Constant changing of ISIN stuff... connections... etcetcet. In the end, I think it sucked... shitty program to use. We also had an off-the-shelf platform that we helped develop so it brought down the initial lease cost. That was about 2k per month per user... So... 50k isn't a lot. Neither is 100k. 50 bucks per month is nothing either. These are likely all to be shit platforms. Small and medium sized HF's probably don't want a custom developed system, because of the ongoing cost to keep it running and that you'll be reinventing the wheel for most of it. If you only have 3 or 4 users... why the trouble? It's might be good to have your own analysis platform that you use on the side of you main trading/market making system... but a full system with trading engines etc isn't worth it IMO. Anyway... my 2 cents...
>> If I am an active trading desk would I rather have an inexpensive analysis and trading product as opposed to the "commercial" customized product I paid big $$ for(and monthly service fees)? Of course. In the context of JackRab's answer, what's "inexpensive analysis" for you? 50 bucks per month? 3 million overall? Where does $50k stand for you? >> The big value would depend on the character of the desk/fund and keep in mind most desks already have a Reuters or Bloomberg terminal that they are not going to drop. That's not what an analysis tool does. Everyone has Reuters and/or Bloomberg but then you only know what everyone knows. Hard to figure out where's your edge. >> Go look at Actant and Itivit and folks like that to see how you compare. For a real trading desk FIX access would be a plus. These guys do a little of everything, not necessarily poorly but can't compete with a customized solution that does a lot of just something. Your edge.
>> We had an in-house developed options market making platform... I think it was "valued" internally at 3 million or something... the cost was probably a lot more, since you need dedicated IT-staff to keep it running. Constant changing of ISIN stuff... connections... etcetcet. In the end, I think it sucked... shitty program to use. Everywhere's the same. Once it gets big (how big I'm trying to find out now), it passes the threshold of usefulness into self sustaining pile of jobs territory. The options market making software I worked on was developed by some 7 people over a period of 4 or 5 years (I only got the last three of them starting in 2006). At $50k/developer (my estimate), that's in the $2M range. But the capital under management by the options guys was around $30M and when I got there it made $15M returns (guys already there told me it was making more the previous years). Dropped to like $5M when crysis struck, then $2M then they (upper management) closed the desk. Brought in some new stars from another fund who just happened to do layoffs and you know, they always lay off their best people first. So these stars were making like $2M in a *month*, or so did their risk-management system show, system which was written by themselves obviously. Which was good because it had like 1,000 indicators not 10 (which mattered, say P&L, delta, a few more) like our deprecated system who only made $2M per year at that point. So our traders left and the shiny stars took over only for management to find out the $3M gain of last day suddenly transformed into a -$5M loss next day. Which the mighty risk system which I repeat, was written by the very guys who were entrusted with the $$$ and management ignored and shut down all our concerns about it, was unable to figure out that will happen. Go figure. Guys explanation was "they just need more money". Previous employer used to have like 100x our budget and they were used to that. Eventually guys were fired or left, eagerly being purchased at even bigger $$$ by other firms, afterall they were front end cutting edge stuff who already proven themselves twice. By the way, if you gimme your money and I'm betting them all on some red or black and it doesn't pan out, I need more money from you to make this work, it's not me it's you. But management payed a hell lot of money on the development of that "risk management system". Coupled with another system on which like 100 people worked for 10 years which apart from breaking randomly and telling you from a day to the next "you're gonna be rich" then "you're bankrupt" and on the rare occasion the honest "I've no ducking clue" they figured out integrating the masterpiece of these guys into the system is another selling point. To be continued...
>> If you only have 3 or 4 users... why the trouble? Because we only had one user initially and they managed $1B+. Firm used to throw $100k+ parties where the only goal was to get another client. But you get the idea.
Question: if I rescinde by tomorrow the willingness to talk about these things, can I have a reasonable guarantee that Magnum or one of the admins will remove my posts? I can edit them in a certain amount of time, I know.
>> So... 50k isn't a lot. Neither is 100k. 50 bucks per month is nothing either. These are likely all to be shit platforms. Small and medium sized HF's probably don't want a custom developed system, because of the ongoing cost to keep it running and that you'll be reinventing the wheel for most of it. https://media.tenor.com/images/71afb0ff7f16fc0e878f772337a2c2d5/tenor.gif