Monetization path for selling / licensing trading strategies

Discussion in 'App Development' started by Aquarians, Jan 6, 2021.

  1. I intend to make the next step and turn what I have into a commercial product. In summary I wanna make money by selling / licensing trading strategies. The vehicle for doing so is the development and commercialization of a software for delivery of algorithmic trading strategies to paying customers. Customers who have an Interactive Brokers account would download and install an application which would connect to IB Trader Workstation on one hand and to a server (cloud) provided by me. They could then configure trading strategies to be run with their account, choosable from a set which depends on the subscription plan they choose to pay for.

    So far I have developed:
    1) An application for designing and (back)testing trading strategies involving options. The options factor is essential since I wouldn't get the results I get without them.
    2) A proof of concept module of the said application for running the trading strategies produced at step #1 automatically with Interactive Brokers.

    What I'm working on next on a technical level:
    a) Develop the POC #2 into a robust autotrading module (tracking positions, handling disconnects, partial fills etc).
    b) Refactor trading app from desktop into a "cloud" version.
    The trading application / platform is developed in Java and runs as a standalone desktop application. This is fine for me using it but for selling it I don't wanna give up the source code and with Java this is impossible if client gets the jar files. So step #b is to refactor the monolithical standalone desktop application into a client-server architecture with most logic running on the server and the client basically only accessing the GUI module which connects remotely rather than local.

    But for success in business, technical execution is not enough. It's necessary obviously, but GitHub has 100 million technical executions that are largely worthless from a commercial point of view.

    So in addition to the technical roadmap, there's also a business roadmap ahead:
    Biz_1) Offer a free version of the client app, bundled with some default / demonstrative / well known trading strategies. Don't expect these strategies to work wonders and also even they may not be free forever because running a server costs money. So it's more like a trial version with extended use.
    Biz_2) Offer a premium plan which delivers and runs some proprietary strategies that I developed myself. First one is a relatively HFT one, not bad if you get the executions but too infrequent for me to make much of it. Still $5 / year or so for it would result in almost surely making more than a customer would pay for :)

    Biz_3) Offer a "deluxe" plan which basically delivers this:

    The whole point of the whole effort is to deliver Biz_3 to either:
    a) At least 1000 retail clients paying $500 for a license to use it.
    b) One or more professional hedge funds who pay at least double the projected amount at #a.

    What I'm looking for is an associate / partner to carry out the above presented business plan. Think of the whole system as 90% ready and if you're developers you know what "90% ready" means. Only that 90% took 10 years, so think of that a bit before scoffing at the effort involved so far.
  2. the key question is: how profitable and stable are your strategies? If so good, why not keep it to yourself? If not so good, why does someone pay you?
  3. >> how profitable and stable are your strategies

    The default ones are standard stuff that you'd find about anyway since "everybody" knowns them. Think "the wheel". Since the strategy is well known, the qualities / disadvantages are also well known. Running such a strategy in an automated way is just a matter of convenience. For well known strategies if someone DOES decide to trade them, it's easier to have them semi-automated than trading manually. No pressure, can run them manually just fine. But if you want the convenience as well (plus some risk management and safety points), install and run them through my software.

    >> If so good, why not keep it to yourself

    Because a good trading strategy is like a good retail product such as a smartphone. Good trading strategies are not lottery tickets, they don't make 1,000,000x return (pay $1 win 1 million). Rather they produce returns in the low two-digit range, with good Sharpe ratio and risk management. This means 20% is a very good return, but unless you have a lot of capital this is not something to make a fortune from. You can only make a fortune by "scaling", which means running the strategy on orders of magnitude more capital than you as an individual, even wealthy one, have. Think of it as Apple didn't become a trillion dollar company by making one iPhone, for the personal use ("trading") of Steve Jobs. One way or another you have to run the strategy on a billion dollars, so it's always selling it. Who you sell it to it's irrelevant from then on, one single fat sale or a lot of thinner ones, end point is the same and that's you must trade $1B on it.

    >> If not so good, why does someone pay you

    Because "not so good" is better than "bad" or "very bad" or even "nothing". A strategy that makes a $500-$2000 a year on a capital of $10k is something worth paying a couple tens of dollars for. Alternative is not paying those $20-$50 and not making those profits.
    MoreLeverage and trend2009 like this.
  4. Get a series 65, open an RIA, and just sell directly to investors. Much easier and you have greater control of the experience.
  5. Nobert


    Based on the correlation, might be a sell for retail audience/newbs, but not for any large fish,(there might be large retailers tho, millionaire doctors etc.). Cuz if i had to make a guess, it's a same QQQ without the garbage, and garbage there is, for sure.

    Best of luck tho. Will follow.

    p.s on the second hand, maybe my statement about large players is too bold, and they're dumber then i think.
    Aquarians likes this.
  6. 2rosy


    get list of newsletter subscribers or individuals who think there is a silver bullet. Sell them the magic beans. All else is meaningless
  7. lvca


    Don't take for granted the legal side. I know in the USA it's very hard to create a marketplace for strategies/algos/portfolios without the approval by the SEC (and a license as a broker). The same in the UK. It should be easier in Dubai or other places with less rules (for now).
  8. interdim


    Now let me preface this first...I am not trying be rude or undermine what you are wanting to do. But if someone approached me with such an offer, something that sells for $500 or along those lines that would tell me there's not much value in what you're selling. Those kind of offers are a dime a dozen.
  9. qlai


    I’m curious why you need to use IB? Don’t NinjaTrader and the likes already have the tech side of what you need. Not sure if they support options.
  10. Maybe later.

    That's something I haven't considered but will look into.

    There is a bit of paradox with trading strategies. Millions of people look for them and it's reasonable to conclude that the vast majority won't find anything worthwhile by their own, best they'll use some well known systm like "the wheel". The time, effort and money they put into chasing something of their own also counts as cost but people forget to count that. So the alternative is purchasing some already designed strategy / strategies, similarly to paying $50 on some "Volatility Trading" educational book. Those books are a dime a dozen yet they sell for fifty bucks.

    So people spend $1000s in hidden costs yet when it comes to purchasing some ready-to-use strategy the common view on it is paradoxical:
    1) A strategy for sale is worth NOTHING because it doesn't work.
    2) A strategy for sale is INFINITE (defined as way more money than you could afford to pay for it) because it works.

    Bottom line common view is that you'll never get any value from purchasing a strategy because it's either worthless or you can't afford it.
    Something tells me there must be some gray area between these two extremes.
    #10     Jan 7, 2021