You have created a great trading strategy, backtested, traded it and now you want to take it to the next level. You may find that developing the strategy was just the first of many difficult steps. With the increased availability of low cost, high quality quant modelling platforms, the field is much more open than it once was. The interest for algorithmic trading his higher than ever and anyone has the potential develop a great trading model. But having a great trading model is not enough. The work is not done yet. This presentation will discuss turning your algorithmic trading strategy into a business or a great job, and becoming a professional trader. We’re going to talk about what it takes to move to the next level and where the common pitfalls lay. What kind of strategies are marketable are which are not. The pros and cons of trading your own money and how to go about finding external capital and gaining traction in the business. Are you ready to take the step?

1. From Algo to Professional
Andreas F. Clenow, Chief Investment Officer

2. Congratulations on your Algo
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 Having built a robust and well performing trading model is just the first step.
 What do you want to do with your trading model?
 Get a job?
 Trade your own cash?
 Start a business?
 Pros and Cons with each
Now the real work starts

3. Pros and Cons with Getting a Job
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 Safety and stability.
 Learn from professionals.
 Concentrate on what you’re good at.
 Will they steal your code?
 Will they let you do what you want to do?
 Do job roles in the financial industry live up to pop culture perception?
Industry Jobs

4. Finding a Job in the Industry
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 My own approach to entering the financial industry.
 Careful research of industry firms.
 Custom designed CV and cover letter.
 Targeted cover letter to each firm.
 Printed on high quality watermark paper.
 Binded with gold staples.
 Wrapped in plastic folders.
 Sent through post.
 Large volume of applications sent.
 The result?
The Traditional Way

5. Trading Own Money is a Poor Trade
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 The dream of the day trader.
 No base income.
 Taking out cash to live on means reducing your base.
 Quest for income leads to excessive risk taking.
 Don’t expect every month, or every year, to be profitable.
 What is realistic? What can you really take out? What about losses?
The Downsides of Trading your own Cash
Year 1
• 100k start
• 40% profit
• Take out 40k living exp
Year 2
• 100k start
• 20% profit
• Take out 20k living exp
Year 3
• 100k start
• 30% loss
• Now what?

6. Economy of Scale
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 Pool the resources.
 Get a base fee and a performance fee.
 Security means staying power.
 Aim for realistic returns – no more urgency for short term income.
 Same trading – Lower risk, more stability, longer term potential.
The Benefits of OPM
Year 1
• 10.1m start
• 20% profit
• 100k management fee
• 200k performance fee
• 20k personal gain
Year 2
• 11.8m start
• 10% profit
• 117k management fee
• 117k performance fee
• 12k personal gain
Year 3
• 12.6m start
• 15% loss
• 125k management fee
• 0 performance fee
• 20k personal loss

7. Why it’s not for everyone
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 Not wanting to run a business.
 Not wanting to risk other’s money.
 Not wanting to deal with investors.
 Not able to find investors.
 Strategy not scalable.
 Regulation.
Why doesn’t everyone do it?

8. Can Your Algo be Scaled?
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 Some strategies can be scaled to billions. Other will only work with thousands.
 Are you reliant on low liquidity markets?
 Is your strategy sensitive to exact execution? What if your slippage goes up?
 Does your algo make heavy use of leverage? Is it realistic to assume you can do the
same in scale, with real money?
 Are you dependent on shorting? Will you be able to locate shares for shorting in size?
Trading large amounts can impact results

9. Are Your Results Realistic?
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 If your simulations look too good, they probably are.
 Everyone has drawdowns. Assume at least twice of your annualized return.
 Compounding at over 20% is unrealistic.
 A Sharpe over 1 is unlikely. Over 2 is extremely unlikely.
 Watch your volatility, watch your skew.
 Assume worse results than your most realistic backtest.
 Professional investors will not be impressed by a backtest showing 50% annual
return at 5% drawdown with a Sharpe of 15.
It’s not about aiming for insanely high numbers

10. Can Your Algo be Explained?
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 Don’t expect to get investors if you are not willing to explain your strategy.
 Seed investors will likely want to know a lot. Be prepared to tell them what they want to know.
 Your strategy needs a coherent story. Gone are they days when you can just trade around as you
please.
 Explain what type of strategy you are selling.
 What market phenomenon are you taking advantage of?
 What makes your approach different, and hopefully better?
 Explain the real world reasons for your returns.
Black box approach is dead

11. Transparency wherever Possible
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 Be honest about what is backtest and what is real.
 Show how much capital has been traded and actual results.
 Explain strategy and show trade examples.
 Show as much data as you can. Daily performance stats etc.
 If it’s just you at home with a computer, don’t pretend it’s already an established firm.
 Avoid complex ownership and corporate structures.
Honest Presentation

12. Trading as a Business
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 Costs
 Office costs
 Hardware / software
 Market data
 Salaries
 Regulatory costs
 Administration
 Auditor
 Revenues
 Never budget with performance fees
Make a Budget

13. Getting the Pieces in Place
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 Get independent legal advice.
 Decide on type of structure.
 Will you manage separate accounts or a collective pool?
 Decide on jurisdictions – get legal advice.
 Do you need multiple entities or jurisdictions? – get legal advice.
 Decide on corporate structure – get legal advice.
 Obtain relevant licenses – get legal advice.
 Don’t forget to get independent legal advice.
Setting it all up

14. What to Expect from Cap Raising
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 Everyone hates cold calling.
 Nobody likes being signed up to mailing lists without being asked.
 Don’t hide your pitch behind corporate newspeak.
 Don’t expect to get a ticket – Hope to start a long term relationship.
 Get them interested enough to follow your progress. Tickets come later.
 Be transparent. Secret black box arrogance is dead in the water.
The Toughest Part

15. Presenting Your Strategy
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 Study the Competition.
 Research the players in your niche.
 Get their presentation materials.
 Collect fact sheets.
 Learn the terminology.
 Follow industry practice for fact sheets and material.
 Give a professional impression.
 Custom visual design is great, but more important to get all the relevant data in there.
 Get the Big Boys’ DDQs. – A wealth of information.
Impressions Matter

16. Do a Monthly Fact Sheet
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Presentation Material

17. Due Diligence Questionnaire
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 You probably don’t need a DDQ, but you can learn a lot
from others.
 Often over 50 pages, packed with information.
 Sample Sections
 Fund Management Company Information
 Performance and AuM Statistics
 Investment Strategy
 Market Risk
 Execution and Trading
 Operational Risk
 Outsourced Functions
Get all the Details
 Legal
 Compliance
 Anti-Money Laundering
 Insurance
 Business Continuity
 Fund Performance
 Terms of Investment

18. The Process May Take Time
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 Be ready for a long process.
 Raising serious money takes time.
 It’s about building long term trust, and earning it.
 In the end, an element of luck may be needed.
 All you can do is to increase the probabilities of favorable results, and be ready when
the opportunity presents itself.
Gaining Visibility Takes Time

19. Alternative Cap Raising
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 Quantopian Contest
 Crowd Finance sites etc.
Different Approaches

20. Andreas F. Clenow
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 Did I tell you I wrote some books?
Shameless Plugs
No chimps were harmed making this
presentation. Much.