What trading approach with the software?

Of the inquiries we receive about both the software and our research service are several related to trading philosophy. We address this regularly in our newsletter service for it is a large topic. Here’s an excerpt from today’s edition to be dispatched to subscribers at 10h00 GMT.

“Some definitions, particularly for newer clients, behind what we do under the banners of ‘equity long/short’ and ‘relative value’.

While hedge fund strategy definitions tend to be fluid it is reasonable to say that pure equity long/short is about stock picking. The long and short securities are not necessarily related. Frequently the overarching portfolio goal is to provide the flexibility to be positive, negative or neutral in terms of market beta.

Pairs trading is a variant of this but seeks to match-up similar securities. And statistical arbitrage is the snooty relation to pairs trading.

Where the traded instruments come from a broader universe of financial assets than equities alone (CFDs, for example), ‘long/short’ tends to be called relative value trading.

Clearly there is much overlap here. This newsletter aims to be pragmatic and forms its trades across what is in reality a broad church of strategies.

Economic substitutes, near substitutes and securities linked by common factors (usually macroeconomic) interest us the most. Statistical substitutes are typically of least interest.”

‘Pragmatic’ is perhaps the most important word in there. Experience and new academic research sometimes offers up new information that needs to be wheated and chaffed; and in this sense a trading methodology may have the characteristics of an evolving framework!