Finance

Algorithmic Trading

Definition Algorithmic trading is a method of trading where computers make decisions on what to buy and sell in the financial markets. Description The aim of algorithmic trading is to either make profits by buying lower and selling higher, or to reduce trading costs by buying or selling big blocks of financial products in an… read more »

Algorithmic Trading Strategies

Definition Algorithmic trading strategies refer to methods in which we can use algorithmic trading to profit in the financial markets. Types of Algorithmic Trading Strategies Alternative Data Correlation Mean Reversion/Cointegration Order Limit Book Analysis Derivatives Structuring Quantitative Investing High-Frequency Trading Machine Learning The above list is not exhaustive or mutually exclusive. Alternative Data The 5… read more »

Market Inefficiency

Definition A market is said to be inefficient when it provides consistent opportunities for profits. Examples When an asset is trading at different prices on 2 exchanges, that is a market inefficiency. When you are able to use satellite images of corn market to predict future harvests, that is a market inefficiency. When you can… read more »

Alternative Data (Finance)

Definition Alternative data is non-traditional (not price or volume) data that has predictive value in the financial markets. Description The 5 popular types of alternative data are: Location Data Consumer Expenditure Data Satellite/Drone Imagery Weather Data Web-scrapped Data Alternative data is used by hedge funds and financial institutions to find profitable opportunities in the markets…. read more »

Options Trading Basics

Definition An option gives the option holder a choice to buy or sell a pre-agreed asset at a certain pre-agreed price. Description There are 2 main types of options: 1) Call option and 2) Put option. Call options gives the option holder a choice to buy a pre-agreed asset at a certain pre-agreed price. Put… read more »

Backtesting Biases and Risks

Definition Backtesting biases refer to how the results of a trading strategy backtest can be misleading. Description Here are the 8 common biases: Black Swan Reconciliation Survivorship Bias Spreads Cost of carry/Holding costs Inaccurate Price Simulation Change in Contract Specifications Look-ahead Bias Curve-Fitting and Optimization Bias Bias 1 – Black Swan Reconciliation Black swan events… read more »

Trading

Definition Trading is a process where we buy and sell financial assets for monetary gains. Description There are 3 general aims of trading Trading to generate profits This essentially involves either buying financial assets at lower prices and selling them at higher prices or to short financial assets at higher prices and buying them back… read more »

Hedge Funds

Definition A hedge fund is an entity that invests/trades its clients money for profit. Description Hedge funds’ clients are usually limited to high net-worth individuals or institutions as dictated by regulations. Active vs Passive Fund Management Hedge funds are actively managed. This means that the fund manager and his/her team make active day-to-day decisions over… read more »

Futures (Finance)

Definition A future contract is a legal agreement for a buyer to buy a certain amount of goods (or a seller to sell a certain amount of goods) at a predetermined future date and price. Description Futures contracts are traded at a centralized financial exchange. Each future contract is based on an underlying asset. This… read more »

Arbitrage

Definition An arbitrage happens when an asset is priced differently on 2 exchanges and a trader buys the cheaper one while shorting the pricier one. Description There are 3 main methods to execute an arbitrage trade. First – Betting on Convergence Buy asset A on exchange X and simultaneously short asset A on exchange Y…. read more »

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