Quantitative trading models/strategies are now widely used by hedge funds, investment banks and some prop trading firms. I want to know if there are any fundamental differences between the methods used in different places. I ask this because I heard that things at prop trading firms are somehow different from the other two. Is this true? If yes, why is it so?
A big position trading firm may choose to use quantitative trading tools purely for large order execution. Say they have a huge block of XYZ futures to buy, they could use algorithms to work the order for them, IE: work 10 lots at a time with scaled down bids, to get the best price without moving the market. But behind the scenes there still may be a portfolio manager making qualitative decisions.
But others may use the algo tools for high-frequency short term trading, for things like arb opportunities that only last a few seconds, where the only way to pull it off is an automated system.
I'm sure there are lots more but those are two extremes.