DiY Hedge Funds

One of the main reasons why a hedge fund will always beat the Small Man is that up till now they have had the big computers and Maths PhD's and you have not. This may change - Reuters:

Backed by private equity, or armed with bonuses earned at banks, traders have been encouraged by an 80 percent or greater fall in the cost of setting up lightning-fast systems over the past five years, trading software provider Portware said.

"The numbers of these firms has exploded," Richard Balarkas, chief executive of broker Instinet Europe, said at the Reuters Global Exchanges and Trading Summit last week.

"I hear venture capitalists are giving money to guys coming straight out of MIT (Massachusetts Institute of Technology) and setting up desks," he said.

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Europe could see the biggest rise in high-frequency trading, being a less mature market. Ultra-fast trading accounts for 30-50 percent of equity market volumes, against 60-70 percent in the United States, the UK Financial Services Authority said.

I've always felt that a lot of what "the Cloud" is supposed to do so far - like knock off Microsoft Office and stick it on Google - is pretty small beer when you think of where most of people's wealth goes. And where the money counts, up till now, the Small Man gets screwed because they just don't have access to the heavy duty technology.

Most consumer fund managers underperform the market, and even if they overperform they have to do spectacularly well to cancel out the fund fees etc. (It has been statistically true since dotcom times that if you managed your own money by random selection you would, on average, out perform the average fund due to fee saving alone)

One of the big switched about a decade ago was the "tracker" fund, which used the automation of the last decade to allow you to buy into a fund that tracked the market anfd the fees were far lower. This is the "2.0" step. (3.0 is an AI that does what bankers do, but without $million bonuses - surely the economic case for that is worth a startup or two too!)

I've been interested in taking these sort of big iron resources and putting them "in the Cloud" as it were for quite a while. And as with VRM, which seeks to turn CRM around and put the buyer in control of their data, giving the average Joe access to trading supercomputers must be a Good Thing

This could all get very, very interesting in the next few years. Definitely a trend to watch