Algorithm-based investment platform Quantopian announced today that it is opening up its beta service to more public users. The move allows access to investment algorithms that have traditionally been restricted to hedge funds and investment banks.
In addition to making its platform and community of “quants” — quantitative analysts — available to any interested investors, Quantopian also announced it had more than $100 million in trading volume in May.
Spark Capital general partner Andrew Parker, who led his firm’s investment in Quantopian, told me in the past that the company has an enormous opportunity for growth, something proven true over the past few months.
“$100 million in trading volume is great validation that the platform works well for quants to trade their ideas with real money,” he said.
“The daily activity in the forums is validation to the thesis that current and aspiring quant traders would be interested in helping each other navigate and explore trading ideas and the Quantopian platform,” he added.
To get a better handle of Quantopian’s growth, the opening of its platform, and how the company plans to expand a very niche investment industry practice to the public, I reached out to the company’s chief executive and founder John Fawcett.
What is the best analogy for what you guys are doing with quants and the quant community?
It’s like what Moneyball did to baseball — by putting data and tools in the hands of the crowd, you get a revolution in thinking.
Is it hard to explain exactly what you guys do to investors, friends, anyone?
The first concept is generally pretty easy to explain: “Quantopian is a place where nerds and hackers write code that is then used to trade stocks and invest.”
What’s a lot harder is to explain just how powerful that is in practice. This is a platform that can disrupt the finance industry, and it takes a while to explore algorithmic investing before you understand how that revolution might play out.
To what do you attribute the rapid growth of the platform?
We’ve put together a powerful toolset that used to only exist in hedge funds and investment banks. We’re able to provide the tools for free. We’ve got a place to write code, 12 years of stock data, a backtester, and a execution platform. Quantitative traders love what they can do with our tools, and the word has been getting out.
What are some of the greater implications of Quantopian’s success for Wall Street and the financial world?
This is the democratization of finance. We’re changing the way quants get into the market, and in time we’ll be able to extend that innovation to retail investors, too. There are a number of middlemen between investors and algorithm writers, and we can cut them out. That means more returns for the investor and for the algorithm writer, and less money for the people in the middle.
What are some of the challenges you’ve faced and overcome so far?
I’d think of two challenges, one is cultural and one technical.
Culturally, quant finance tends to be a secretive industry. Everyone thinks they have a secret sauce, and they don’t talk about their programs. We had a lot of doubters who didn’t think that we could create a community of quants who would share ideas.
We’ve got 20,000 members of the community so far, so I think we were right. They want to work together. That community is a great place to learn how to be a better quant.
The technical challenges are in some senses more straightforward – anyone who has built a trading platform to interface with the live market knows that it’s a high stakes proposition with no margin for error – we couldn’t afford to approach our development the way a gaming app startup might, delivering lots of incremental functionality, fixing bugs along the way.
To overcome this challenge we really had to make a bet that live trading was worth a major investment on our part – thankfully our first few months of trading have been an encouraging sign that it was well worth it.
What’s next for Quantopian?
We’re very excited about the open beta.
We’re going to bring algorithmic investing to an audience of people who have never had the access to it before. We’re going to be able to bring in hundreds and thousands more customers, and we’re going to learn from them.
Specifically, we are looking to add more data sources to the platform, expand our live trading capabilities to integrate with more brokers, and eventually extend our tools to cover all major asset classes and geographical markets.
In short I guess we want to take over the world. (I suppose that last line is a bit tongue in cheek.)