1/ A lot of quant traders (including myself at many times) have a knee jerk instinct to believe that if a strategy is technically challenging it must mean there’s more alpha underneath.
2/ Anyone with experience will tell you this just isn’t true. Even knowing this, it’s still hard to think outside the implicit bias of hard equals lucrative.
3/ I’ve seen insanely complex strategies requiring teams of PhDs, where the alpha was competed down to next to nothing. These teams persisted picking up scraps well past the point it made any economic sense.
4/ On the flipside, I’ve seen trades print money for years, which a smart undergrad could hack together in a couple weeks. (If they were looking in the right place.)
5/ Markets overall tend to be pretty efficient. But the quant meta game is shockingly inefficient. Quant strats are almost exclusively traded by large, heavily resourced organizations. That creates a lot of frictions and lack of agility at the meta game level.
6/ Desks rarely can step outside their pre-determined mandates. “Weird” strategies that don’t fit in a pre-existing portfolio construction framework are avoided like the plague. There’s a lot of institutional inertia to just stick with whatever worked in the past.
7/ But more than anything quants have a scientific-academic mindset. If a problem is proving difficult to crack, the natural impulse is to redouble your efforts. Not cut corners and seek an easier alternative.
8/ For a scientist, working on hard problems is a badge of honor. In business (including trading) ignoring low hanging fruit is a boneheaded move.
9/ Where in the space are the biggest morons still making a ton of money? Wouldn’t it be easier to go beat them at their own game?
10/ Is grinding out another 100 nanoseconds in the FPGA hot path or another 0.1 basis points of RMSE in your ML model really worth the effort? Right now, there are quants making ten times more money in a far less competitive space who think FPGA is a club in midtown.
11/ Almost every quant I’ve ever met (including myself) would do better to frequently ask themselves: “Is there an easier alternative to making more money?” Sometimes that requires stepping far outside your comfort zone.
12/ Almost every quant org would do better to stop worrying so much about their inter-desk correlation matrices, and empower their strategists with much broader leeway to find alpha wherever they can.

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More from @0xdoug

14 Sep
1/ Over the past year DeFi has been heavily colonized by HFT emigres. A lot of us come in with an arrogant attitude that we’re much smarter than the DeFi native folks. We naturally assume that however we did things in CeFi must be better. (🙋‍♂️I’ve certainly been guilty of this)
2/ Unfortunately I think Serum has been a victim of this attitude. AMMs have served DeFi very well. But the HFT folks behind Solana and Serum naturally assumed that limit order books must be superior because that’s how CeFi does it.
3/ CLOBs have a lot of major advantages in terms of price discovery and capital efficiency. But they’re much less resilient than AMMs. Today’s outage shows a major downside with CLOBs.
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