Why was it developed?

Initially, we were so surprised at the poor quality of forecasts that we have tried to understand why so many algorithmic systems go spectacularly wrong and are prone to bouts of unreliability and incoherence. Based on what we learnt and observed, we developed Bamboo Alerts. It is the result of an extensive and on going testing programme, to improve the quality and accuracy of foreign exchange forecasting.

Quant and leap - More information for the curious and discerning technocrat.

Five years ago data was not obtainable in the right format. Now, not only can data be obtained in the right architecture to be processed. The systems and infrastructure have developed to be sufficiently powerful to let algorithms express opinions several hundred times a day.

In the currency world algorithms implementing quant strategies provide important liquidity when the currency of a country is falling. When there is a run on the currency, these algorithms are likely to have picked up the trend than the fundamental investor and start to buy back the currency before the discretionary funds.

This ability to formulate views in minutes does not impact on the currency price but does increase the volatility of the currency. In theory, a number of different trends coinciding could cause a run on the currency, but the likelihood of this has diminished with the increasingly sophisticated algorithms. Statistical arbitrage is a good example of how managers have had to evolve their investment strategies quickly. It is the most popular quant strategy in the hedge fund universe!

From 1995 - 2000 statistical arbitrage, the darling of the hedge fund industry, was making excellent returns. Back in the good old days statistical arbitrage was very simple: it looked at the correlation of two currency prices- when one currency price moved “out of whack”, then the trader would buy or sell the currency to make a profit when normality resumed. Now, however, it has become more difficult to make money from it, as the growth in the number of players in the market made the trends dry up more rapidly.

For statistical arbitrage to be successful today, our model has to look at the correlation between more than two currency prices. For this reason many currency prices are compared and contrasted. Additionally, a large number of variables from many types of asset classes are considered, for example; the spot oil price, the dollar- yen exchange rate and the currency futures market. Because of the increased sophistication of world currency trading we are creating synthetic currencies or currency baskets and as more currencies moves outside the established parameters of necessity, our views have had to become more refined.