Rocky markets test the rise of amateur 'algo' traders

Thu Jan 28, 2016 10:02am EST
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By Atul Prakash

LONDON (Reuters) - University student Spencer Singleton is among a growing band of amateurs turning to computer-driven automated stock trading - until now the preserve of hedge funds and mega brokers - and says he's beating the market.

Texas-based Singleton won a contest last July run by an algorithmic investing website to write trading programs. The site, Quantopian, gave him $100,000 to put his model into action for six months and told him to keep any profits.

The 21-year-old says his portfolio is up about 1.5 percent so far this year, against an 8 percent slump in the S&P .SPX equity index. Likewise, he has made about 2.5 percent since mid-September, whereas the U.S. index lost more than 7 percent in the period.

Other amateurs have tried the same game from their front rooms or garden sheds and ended up getting burnt, concluding that this is a hunt for "fool's gold" best left to the big players unless you're an ex-professional or computer whizz kid.

Singleton is neither - he is a third-year student of supply chain management - but says the competition gave him his big break. "As a university student, I wouldn't have been able to get $100,000 in a million years to trade," he told Reuters. "It would have easily taken 10 years for me to develop a complicated algo platform like the one offered by Quantopian."

Program-driven online trading platforms such as U.S-based Quantopian and QuantConnect and British-based Cloud9trader - which have clients across the world - did not exist at the height of the financial crisis of 2008.

However, Singleton said he has tested his model against historical data from the crisis year, yielding a 16 percent return against a 38 percent slump in the S&P index.

Huge numbers of amateurs are now trying to strike it rich on global markets, with the overall retail trading market worth up to $3 trillion in the United States alone.   Continued...

Traders work on the floor of the New York Stock Exchange January 26, 2016. REUTERS/Brendan McDermid