What is quantitative trading, and how does it work?

img3 - What is quantitative trading, and how does it work?

A question on those who are wanting to get into trading is what quantitative trading is!

Quantitative trading is a computer-software system developed to track the stock market changes and activities in order to recognize investment opportunities to buy and sell stocks at the correct price.  This is done through a series of mathematical computations and various formulas.

A bit of history and breakdown of how quantitative trading works:

The quantitative trading theory has been around since the 1950’s in a research thesis done by Harry Markowitz who is a Nobel Prize winner.  His paper was one of the first thesis to have formally adapted a mathematical concept to finance.

It was not really until the 1970’s, however, that investors actually began applying mathematical formulas to trading.

Through the use of a computer software program(s) which output is usually linked to some form of spreadsheet or database, the quantitative trading strategy is able to track stock trends which come from the volume and price at which the stock is traded.

As stocks either trade in downward or upward patterns, this system uses these trends to profit from.

In qualitative trading, the outcome is based on the analysis and experienced insight of the trader which could leave certain stock patterns or behaviors not picked up by the trader to be missed, whereas it is less likely to be done by the computer.


The 2008 financial crisis brought quantitative trading under heavy scrutiny and review as traders claimed that the computer software was not accurate enough in the trading of stocks which in turn lead to a big market sell-off.  Quantitative trading has been refined and fined tuned since 2008 and there are a lot of new variant of trading which have been opened up allowing non-traders a chance to try their hand at trading.

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