Alpha Streams Market

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Hello All,

We've released some pretty radical changes in the last month, starting with making the Alpha Market public. This allows investors with accounts as small as $10,000 to license code and deploy algorithms from the community to their trading accounts.

Alphas were previously only deployed to paper trading, and their signals consumed by funds by API. This provided a homogenous environment that provided fantastic stability and almost eliminated bugs. Alphas were regularly up and running for 6 months at a time.  

The Situation

Deploying to user accounts has provided a huge range of new challenges as every investor's account is slightly different and the Alphas weren't equipped to manage random capital allocations, holdings, cash currencies, and account-permissions. We've been scrambling the last two weeks trying to patch the edge cases as fast as possible but we've decided it's not possible to continue that pathway for now due to the high risks and instability it causes for investors. 

Unfortunately for now we need to restrict deploying Alphas to "single-purpose accounts". This means the account will be fully controlled by the Alpha; including any existing holdings. If investors have a larger account and only wish a partial allocation to an alpha; investors will need to create sub-accounts at their brokerage with a dedicated username and password and launch the trading with that account. I appreciate this is an unfortunate barrier to entry but the risks are too great to continue the previous "mingled" account design. 

The Plan

We have a plan to reduce this friction. We can use the Alpha Streams paper-account portfolios and build the point in time portfolio the Alpha is holding. This will then allow an investor to select N-Alphas; and we can do simple math to combine N-Alpha portfolios together, scaling them to the allocation requested. This will still be a "single-purpose account" but it would be one account for all alphas licensed. This has an ETA of about 4-6 weeks. 

 - Currently, freshly deployed alphas may not trade for many days while they build-up internal state; the modeled point-in-time portfolio would help solve this by instantly getting the investor accounts into the correct state on deployment according to the master Alpha. 

 - As it would also be one live server (or none ideally) it can reduce the costs to investors further by eliminating the need for live hosting and lowering their costs; hopefully leading to more alpha licensing.

Thank you for your patience with us over the last few weeks. We've been working incredibly hard to try and keep up and think this simplification that although a barrier is the best thing we can do without taking the marketplace offline. We've been really excited to see the quick adoption of the Alphas and can see it growing in 2021 to hundreds of millions in assets! 

Best,

Jared

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The material on this website is provided for informational purposes only and does not constitute an offer to sell, a solicitation to buy, or a recommendation or endorsement for any security or strategy, nor does it constitute an offer to provide investment advisory services by QuantConnect. In addition, the material offers no opinion with respect to the suitability of any security or specific investment. QuantConnect makes no guarantees as to the accuracy or completeness of the views expressed in the website. The views are subject to change, and may have become unreliable for various reasons, including changes in market conditions or economic circumstances. All investments involve risk, including loss of principal. You should consult with an investment professional before making any investment decisions.



 
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The material on this website is provided for informational purposes only and does not constitute an offer to sell, a solicitation to buy, or a recommendation or endorsement for any security or strategy, nor does it constitute an offer to provide investment advisory services by QuantConnect. In addition, the material offers no opinion with respect to the suitability of any security or specific investment. QuantConnect makes no guarantees as to the accuracy or completeness of the views expressed in the website. The views are subject to change, and may have become unreliable for various reasons, including changes in market conditions or economic circumstances. All investments involve risk, including loss of principal. You should consult with an investment professional before making any investment decisions.


Thanks, Jared! I believe this is a step in the right direction.

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Thanks for the update J. Big picture - this is massive innovation - and  the development of a next-generation platform for those who license and develop alike - keep up the great work! 

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What will happen to strategies currently licensed and not running on single purpose accounts? 

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Once they redeploy they will no longer have the option to limit the allocation the previous way. The next redeployment will require using the whole account. If this is your case I would recommend contacting your brokerage now to set up a subaccount user and password now and transferring an allocation to the new subaccount. I'm sorry I know it's a pain but it was just too risky doing it the other way.

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The material on this website is provided for informational purposes only and does not constitute an offer to sell, a solicitation to buy, or a recommendation or endorsement for any security or strategy, nor does it constitute an offer to provide investment advisory services by QuantConnect. In addition, the material offers no opinion with respect to the suitability of any security or specific investment. QuantConnect makes no guarantees as to the accuracy or completeness of the views expressed in the website. The views are subject to change, and may have become unreliable for various reasons, including changes in market conditions or economic circumstances. All investments involve risk, including loss of principal. You should consult with an investment professional before making any investment decisions.


I haven't attempted to license another alpha so if this is already mentioned somewhere in the process I apologize.  However, one thing to note is that many strategies likely exceed the pattern day trade limits that are imposed on accounts with less than $25,000.  If someone were to license an alpha for only one lot and have that alpha control their account trading it might cause issues if the account cannot make all of the necessary trades.  Perhaps the minimum allocation for strategies that make over 3 trades per week on average should be 3 lots?

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No problem Stephen we're iterating pretty fast so there is not much written down yet. That is precisely what we're doing - except it's set by the author of the strategy in the Settings dialog. Canadian residents are not subject to PDT so we had a few complaints when we enforced 3-lots. We opted instead to let the author set the minimum and showing a warning for everyone else if we think its a fast-trading strategy. 

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The material on this website is provided for informational purposes only and does not constitute an offer to sell, a solicitation to buy, or a recommendation or endorsement for any security or strategy, nor does it constitute an offer to provide investment advisory services by QuantConnect. In addition, the material offers no opinion with respect to the suitability of any security or specific investment. QuantConnect makes no guarantees as to the accuracy or completeness of the views expressed in the website. The views are subject to change, and may have become unreliable for various reasons, including changes in market conditions or economic circumstances. All investments involve risk, including loss of principal. You should consult with an investment professional before making any investment decisions.


What does a lot mean? Does it mean 10K?

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I am interested in licensing Bitcoin Momentum and Mean Reversion Algorithm. How do I figure out what instruments in trades? Does it trade the bitcoin futures? I thought alpha listing requires the publisher to list their universe but I did not see one listed for this particular alpha..

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This alpha mention a price of three dollars per lot. I am wondering is this price one time or monthly or for certain duration? Again I did not see this specified anywhere on the Alpha listing page.

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It would be great to have multiple algos to license as from the overview it is difficult to see how and what an algo is trading. How much spread does it have in what categories, how much allocations per ticker? I trade for instance per 2 or 4K, 10K over 50 tickers manually. However, the algo I subscribed does 20K over 8 stocks, and tries to trade after market closure which failed. Once the alpha is assigned it would help you can set the start and end date to do little more research if the algo would work if you would start using it at a particular time.

Secondly, 1 account for multiple algos would be a huge plus, as from European perspective, it took me 4 months to get a business account to avoid all the MFID2 stuff. I finally also got a LEI which is obligated for European non-retail traders. Big brothers in Europe :-). The alpa streams might trade something you do not have permissions to, knowing that in advance or during back testing would be a plus.

Regarding the subscription, I found that for some reason I needed to pick all server options although only a simple server would do to run the algo. This is a bug in the subscription page. So finally I had to check out a full seat instead of a smaller seat without notebooks and research stuff.

Next, I do not like the bidding system, in the end an algo might be more costly than a ETF or the performance risk if investors start (over)bidding. Practically, I would like to start with amount X and then the algo and the subscription does not take the total portfolio into account. If the algo is doing bad, you are paying too much for the subscription. If the algo is doing good, you need to increase the subscription all the time. If the surplus would be untouched (also in back testing), then the licensing could continue without that it stops as I am currently facing. It is not nice that the algo stops as it might not anticipate correct if it is turned on at a later moment. In particular, if you stop it or the license has a problem, it is impossible to see the last trades to correct manuallly or to have history, or run the algo to replay if it did run as is illustrated in the backtest or its performance.

Keep the good work going, hope this feedback helps, and I hope to retire soon :-).

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Thank you for the questions Manoj Agarwala 
- I've updated the text to make it clearer; the reserve price was $3 per $10k allocation.
- Periods are monthly, correct. We are updating this now to allow 1M, 2M or 3M licensing.
- The instruments traded are lower down on the Alpha page as a pie chart.

Thanks for the feedback Quant Trader we're working on simplifying it now:
 - A single account is the plan! We are designing it now but it's a complex project so ETA 2-3mo.
 - Servers will be included in the licensing code so you don't need to manage them.
 - Licenses will look more like subscriptions with a maximum subscription cost (bid).
 - We cannot charge based on performance due to US regulation so it will need to be a fixed subscription. 
 - We're keeping the auction system to provide the best place for quants to monetize their alpha; despite potential higher costs for investors. An ETF beta follower is not comparable with an alpha-producing strategy. 

The auctions will now also only run monthly to provide some more stability to investors and make it feel more like a subscription. These new changes should be about 3-4 days away. 

 

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The material on this website is provided for informational purposes only and does not constitute an offer to sell, a solicitation to buy, or a recommendation or endorsement for any security or strategy, nor does it constitute an offer to provide investment advisory services by QuantConnect. In addition, the material offers no opinion with respect to the suitability of any security or specific investment. QuantConnect makes no guarantees as to the accuracy or completeness of the views expressed in the website. The views are subject to change, and may have become unreliable for various reasons, including changes in market conditions or economic circumstances. All investments involve risk, including loss of principal. You should consult with an investment professional before making any investment decisions.


I'm still very curious how the capacity is being calculated.  I've read in the past that if your trades are under like 5% of the daily dollar volume you're not really going to make any waves.  I'd like to see how the calculation compares to that arbitrary benchmark.  

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Stephen Hyer : 5% of the daily volume is pretty huge, actually. Let's think of Jarnuary 21st of 2008, the day that the Societe Generale liquidated what they could of their huge exposure of about 50 billions € previously taken by Kerviel, which leads to:
https://www.onthisday.com/date/2008/january/21
and:

https://www.theguardian.com/business/2008/jan/22/marketturmoil.equities

 

Agreed, there were other bad news, bad mood, maybe some people saw that there was "something to profit from"... the US markets were closed because of the bank holiday, which probably increased a lot the volatility of this day, and the issue that Societe Generale had: they were compelled NOT TO trade more than 10% of the daily volume of futures (CAC40 and DAX30 if I remmember well)... but the exposure of selling about only 20 billions by Societe Generale on the future markets were enough to ignitiate one of the biggest sell-off at that time (agreed, the sell-off of October 2008 would be MUCH MORE VIOLENT only 9 months later, but at that time, the 21rd of January 2008 was really something!)

Still, as you, I would be very interested in knowing more about the capacity calculations of QC.
 

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The full source of the capacity estimate is here. TLDR:

  • Sum of 2-20% of the volume in the 10-60minutes after a trade happens. Minute data uses 20% of trailing 1-60min bars and daily data 2%. 
  • Averaged by the number of trades in the period to penalize fast traders. 
  • Scaled up by smallest capacity asset max(fraction of holdings, sale volume) in the period monitored. 
  • 3-EMA on the capacity to smooth it out.
The goal was a replication of a strategy at any point, so the focus was if I wanted to buy in now; what could it accommodate. 
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The material on this website is provided for informational purposes only and does not constitute an offer to sell, a solicitation to buy, or a recommendation or endorsement for any security or strategy, nor does it constitute an offer to provide investment advisory services by QuantConnect. In addition, the material offers no opinion with respect to the suitability of any security or specific investment. QuantConnect makes no guarantees as to the accuracy or completeness of the views expressed in the website. The views are subject to change, and may have become unreliable for various reasons, including changes in market conditions or economic circumstances. All investments involve risk, including loss of principal. You should consult with an investment professional before making any investment decisions.


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Update Backtest






The material on this website is provided for informational purposes only and does not constitute an offer to sell, a solicitation to buy, or a recommendation or endorsement for any security or strategy, nor does it constitute an offer to provide investment advisory services by QuantConnect. In addition, the material offers no opinion with respect to the suitability of any security or specific investment. QuantConnect makes no guarantees as to the accuracy or completeness of the views expressed in the website. The views are subject to change, and may have become unreliable for various reasons, including changes in market conditions or economic circumstances. All investments involve risk, including loss of principal. You should consult with an investment professional before making any investment decisions.


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