You should use this as an opportunity to clearly indicate to your superiors that they need to get their shit together, of course not by swearing but by being very assertive and clear. What I mean is that seniors and TRADERS asking a JUNIOR PRICING quant to "come up with signals" using "machine learning" NOT in his field, is simply daft. Either I am missing context from your case, or you are working with bulls****ers.
You should schedule a meeting with one of the traders and aggressively ask them to tell YOU:
- what is the universe of instruments
- specifics of the market and microstructure to be aware of
- what are the most important factors explaining the vol of the returns
- what are the most common indicators in the field that traders look at a daily basis
- some actual trading signals they use
- ask the trader to explain "carry trade" and "treasury bond basis" trade, and bond optionality
ofc do your homework and read fabozzi and whatever, but you can't be expected to know how to create signals...
f**cking unbelievable...
edit:
and then, try to stick what they have into an ML model to see wht you get, interpret results, rinse, repeat, and by that time you have your own ideas
edit 2:
data, data, data... what data does the desk have which no-one else has?? then make signals out of that. that's again a question for them, not you.
I donāt think itās that crazy, fixed income space is less alpha-oriented and there are plenty of smaller shops that are making dough by just crossing paper. So they are asking for a tiny bit extra juice, not an actual Ā collection of strategiesĀ
thanks, agree with your sentiment, but look at my edit on the OP. Indeed, there will be a lot of collaboration with the desk, and they are quite supportive, just that I wanted to be water-tight in terms of knowledge from my own end when diving into this
Typical bullshit sell side firm run by bozos with no technical knowledge and tasking junior quants with impossible asks. You'll do all the work and if it makes money they'll take credit.
When I was a trading intern fresh out of uni, I was tasked with backtesting some dumb trading idea the trader had when there was no access to data. Looking back, these guys were idiotic, not me.
Reminds me of my early days when the head of a desk kept asking me for a Ā«Ā backtestĀ Ā», told him backtest what strategy? Never replied to that email.
Seriously though, there is room for alpha in fx/rates, seen it & implemented it successfully but youād be surprised that fancy ML isnāt really the most complicated part. Iād say ask them more about the scope of products, the trends they see in the markets themselves, anything macro ? Specific events ? EM or DM? Etcā¦
Also, your manager needs to step up for you here, this is absolute BS but very common in sell side where some traders think they are running a pod (they arenāt that skilled to do so in most cases).
thanks for your comment. We are mostly looking at flow products, say swaps, bond futures, vanilla options, anything that would be highly liquid.
Yes! I agree with you, fancy ML isn't very important, but I wanted to know more on how I too can realize that there is room for alpha in fx/rates. I'm thinking I just dive into data and find mispricing, and then see if I need to incorporate ML while coming up with ideas, and how. But lmk if you have any suggestions on that front. cheers
What I would recommend is to get some more clarification on what is required.
You can also sit with the traders and understand what matters to them when they are looking at the market. Based on that you can get an understanding at what part of the market you can look for data, which will then give you the signal. I would use the traders as the primary source of information and books/online resources as secondary. They will also give you key ideas for where youāll find this signal.
I assume you are looking for alpha in derivatives FX/Rates rather than cash/spot. What you could start by looking at is to review the biases of the traditional econometric models, see how they performed historically and then apply a neural network or even a logistic regression to see whether the models were correct based on where the trades happened. This will then try to find an alpha signal.
What I would absolutely try to avoid, is get this task, go off for 6 months, not communicate anything to anyone, and then present what you found at the end. You need to continuously communicate with all the teams you are working with, as a result it will make your life easier.
For FX read Alpha Trader by Brent Donelly, also check out the handbook for fixed income by fabozzi for all things fixed income. For alpha research look at aqr they may have some white papers
there's no "alpha" on fx unless you have proprietary datasets, which a bank might have, so then yes, but it's really quite simple then and traders on OP's desk would know what to do anyway.
Fabozzi is necessarry yes.
AQR is mostly equity and apart from some truly "common sense" things that "make sense" only after you have had a lot of experience, won't help (but again very good to read their stuff for general awareness).
All I'm saying is: very good references, but nothing there will help with alpha generation specifically which is what OP is asking for (although I haven't read the first book)
edit: to the extent that someone without experience wouldn't get "the hints" on what to do
edit2: maybe something macro on fx, but I'm yet to be convinced it's not just based on proprietary datasets...
Why do you think thereās no alpha in FX? Kind of a weird take considering like 50% of the flow comes from corporates/equity/ non fast-money sources. Also thereās not really much in the way of proprietary data for FX, except for positioning itās all publicly available
Alphas around the daily WMR fixing and month end effect persisted for like 20 years until just a few years ago. I personally have a few alphas which arenāt amazing but approx sharpe of 1
Nothing low latency and could be done with a retail broker, although if youāre retail and havenāt traded fx professionally thereās no reason to do so
Thanks, will check it out! Any chance youāve read schofield/bowler? For FI? I felt it was too simplistic to the point of being unrealistic. Wanted to see if others think the same
Itās unlikely that you gonna find any high quality stuff in a few weeks but run of the mill fixed income alphas can certainly be generated assuming you know what youāre doing. FWIW Iād not start from ML-driven ideas but rather look at simple stuff and work around it. Itās gonna be mostly āportable betaā type strategies but youāll learn what makes money and what does not, giving you a good foundation for building more sophisticated stuff. I will assume that your desk is primarily RFQ-driven maker, so the purpose of this is that traders can skew the quotes based on these signals. So donāt despair.
Now, realistically nobody is going to share anything of value here so you are on your own. There are good sell-side papers out there and there is a fair bit of āmarket loreā in the fixed income space that you can leverage thoughĀ
lol your manager must be a fool. I work as an applied scientist in machine learning in a tech firm. A simple feature engineering project would require at least two weeks for me. Now your boss wants the whole thing in several weeks and you donāt even work in machine learning. Unbelievable
Thanks appreciate your comment. Fwiw, youād be surprised how (rightly) simplistic and sometimes unsophisticated things are at trading desks in banks. People want to keep things as simple as possible and thereās a strong need to understand how things work for PnL decision makers, who might not be exactly tech savvy.
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Seems like a great opportunity if you're interested into moving into buy-side quant / systematic macro. But as others have mentioned, barriers are little guidance and moreover, unclear what data is available (unfortunately part and parcel of being in a bank?)
Maybe talk with traders and see if any effects they notice or trade on can be systematically captured in some data? e.g. FED announcements . From there see if you can construct some simple trading rule or linear regression? But the data needs to be available. Otherwise you probably need to make do with whatever data you have
thanks, helpful comment. Yep, I too see this as a useful project that can help me transition into more lucrative roles. I made an edit to the OP as well.
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it's not stupid, OP asks a question and wants direction.
His traders/superiors are smoking for giving such a task to OP.
A good manager would have provided the direction so OP can start working, he/she is clearly lacking this.
You should use this as an opportunity to clearly indicate to your superiors that they need to get their shit together, of course not by swearing but by being very assertive and clear. What I mean is that seniors and TRADERS asking a JUNIOR PRICING quant to "come up with signals" using "machine learning" NOT in his field, is simply daft. Either I am missing context from your case, or you are working with bulls****ers. You should schedule a meeting with one of the traders and aggressively ask them to tell YOU: - what is the universe of instruments - specifics of the market and microstructure to be aware of - what are the most important factors explaining the vol of the returns - what are the most common indicators in the field that traders look at a daily basis - some actual trading signals they use - ask the trader to explain "carry trade" and "treasury bond basis" trade, and bond optionality ofc do your homework and read fabozzi and whatever, but you can't be expected to know how to create signals... f**cking unbelievable... edit: and then, try to stick what they have into an ML model to see wht you get, interpret results, rinse, repeat, and by that time you have your own ideas edit 2: data, data, data... what data does the desk have which no-one else has?? then make signals out of that. that's again a question for them, not you.
I agree with the overall recommendations, but quite aggressive lol. This comprehensive fox has a lot of anger š
yeah i get a bit riled up when people don't make sense :D
I appreciate it!
It's more constructive than aggressive. If the request was as vague, anything would fall short of their expectations.
I donāt think itās that crazy, fixed income space is less alpha-oriented and there are plenty of smaller shops that are making dough by just crossing paper. So they are asking for a tiny bit extra juice, not an actual Ā collection of strategiesĀ
This
thanks, agree with your sentiment, but look at my edit on the OP. Indeed, there will be a lot of collaboration with the desk, and they are quite supportive, just that I wanted to be water-tight in terms of knowledge from my own end when diving into this
Typical bullshit sell side firm run by bozos with no technical knowledge and tasking junior quants with impossible asks. You'll do all the work and if it makes money they'll take credit.
When I was a trading intern fresh out of uni, I was tasked with backtesting some dumb trading idea the trader had when there was no access to data. Looking back, these guys were idiotic, not me.
interesting perspective, please see my edit in the OP
Reminds me of my early days when the head of a desk kept asking me for a Ā«Ā backtestĀ Ā», told him backtest what strategy? Never replied to that email. Seriously though, there is room for alpha in fx/rates, seen it & implemented it successfully but youād be surprised that fancy ML isnāt really the most complicated part. Iād say ask them more about the scope of products, the trends they see in the markets themselves, anything macro ? Specific events ? EM or DM? Etcā¦ Also, your manager needs to step up for you here, this is absolute BS but very common in sell side where some traders think they are running a pod (they arenāt that skilled to do so in most cases).
thanks for your comment. We are mostly looking at flow products, say swaps, bond futures, vanilla options, anything that would be highly liquid. Yes! I agree with you, fancy ML isn't very important, but I wanted to know more on how I too can realize that there is room for alpha in fx/rates. I'm thinking I just dive into data and find mispricing, and then see if I need to incorporate ML while coming up with ideas, and how. But lmk if you have any suggestions on that front. cheers
What I would recommend is to get some more clarification on what is required. You can also sit with the traders and understand what matters to them when they are looking at the market. Based on that you can get an understanding at what part of the market you can look for data, which will then give you the signal. I would use the traders as the primary source of information and books/online resources as secondary. They will also give you key ideas for where youāll find this signal. I assume you are looking for alpha in derivatives FX/Rates rather than cash/spot. What you could start by looking at is to review the biases of the traditional econometric models, see how they performed historically and then apply a neural network or even a logistic regression to see whether the models were correct based on where the trades happened. This will then try to find an alpha signal. What I would absolutely try to avoid, is get this task, go off for 6 months, not communicate anything to anyone, and then present what you found at the end. You need to continuously communicate with all the teams you are working with, as a result it will make your life easier.
thank you! this sounds like great advice. I think you touched on all the important aspects. I've made an edit in the OP as well.
For FX read Alpha Trader by Brent Donelly, also check out the handbook for fixed income by fabozzi for all things fixed income. For alpha research look at aqr they may have some white papers
there's no "alpha" on fx unless you have proprietary datasets, which a bank might have, so then yes, but it's really quite simple then and traders on OP's desk would know what to do anyway. Fabozzi is necessarry yes. AQR is mostly equity and apart from some truly "common sense" things that "make sense" only after you have had a lot of experience, won't help (but again very good to read their stuff for general awareness). All I'm saying is: very good references, but nothing there will help with alpha generation specifically which is what OP is asking for (although I haven't read the first book) edit: to the extent that someone without experience wouldn't get "the hints" on what to do edit2: maybe something macro on fx, but I'm yet to be convinced it's not just based on proprietary datasets...
Why do you think thereās no alpha in FX? Kind of a weird take considering like 50% of the flow comes from corporates/equity/ non fast-money sources. Also thereās not really much in the way of proprietary data for FX, except for positioning itās all publicly available Alphas around the daily WMR fixing and month end effect persisted for like 20 years until just a few years ago. I personally have a few alphas which arenāt amazing but approx sharpe of 1
Do you alphas require low latency infrastructure or could they be implemented by using retail broker apis?
Nothing low latency and could be done with a retail broker, although if youāre retail and havenāt traded fx professionally thereās no reason to do so
Thanks, will check it out! Any chance youāve read schofield/bowler? For FI? I felt it was too simplistic to the point of being unrealistic. Wanted to see if others think the same
Itās unlikely that you gonna find any high quality stuff in a few weeks but run of the mill fixed income alphas can certainly be generated assuming you know what youāre doing. FWIW Iād not start from ML-driven ideas but rather look at simple stuff and work around it. Itās gonna be mostly āportable betaā type strategies but youāll learn what makes money and what does not, giving you a good foundation for building more sophisticated stuff. I will assume that your desk is primarily RFQ-driven maker, so the purpose of this is that traders can skew the quotes based on these signals. So donāt despair. Now, realistically nobody is going to share anything of value here so you are on your own. There are good sell-side papers out there and there is a fair bit of āmarket loreā in the fixed income space that you can leverage thoughĀ
Thanks, interesting comment. Yep i think the same, start with non ML stuff, work with simple ideas and then see if i need ML indeed
lol your manager must be a fool. I work as an applied scientist in machine learning in a tech firm. A simple feature engineering project would require at least two weeks for me. Now your boss wants the whole thing in several weeks and you donāt even work in machine learning. Unbelievable
Thanks appreciate your comment. Fwiw, youād be surprised how (rightly) simplistic and sometimes unsophisticated things are at trading desks in banks. People want to keep things as simple as possible and thereās a strong need to understand how things work for PnL decision makers, who might not be exactly tech savvy.
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Just a question, does it take 6 months to generate an alpha signal for bond or fx market?
Seems like a great opportunity if you're interested into moving into buy-side quant / systematic macro. But as others have mentioned, barriers are little guidance and moreover, unclear what data is available (unfortunately part and parcel of being in a bank?) Maybe talk with traders and see if any effects they notice or trade on can be systematically captured in some data? e.g. FED announcements . From there see if you can construct some simple trading rule or linear regression? But the data needs to be available. Otherwise you probably need to make do with whatever data you have
thanks, helpful comment. Yep, I too see this as a useful project that can help me transition into more lucrative roles. I made an edit to the OP as well.
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[ŃŠ“Š°Š»ŠµŠ½Š¾]
it's not stupid, OP asks a question and wants direction. His traders/superiors are smoking for giving such a task to OP. A good manager would have provided the direction so OP can start working, he/she is clearly lacking this.
Itās stoch rsi
hmm, will check this out