Ask HN: Whats the best way for a Software Engineer to learn finance?

27 points by rupertdev 8 years ago | 20 comments

Hello!

I'm a young software engineer looking to learn enough finance to get started in algorithmic trading.

What are some good resources for someone with a programmer's mindset to learn finance?

Thanks!

If by trading, you mean high-frequency, then don't. I encourage you to instead study investing. But if you must learn trading (don't), then Ernie Chan and Michael Halls-Moore's book (s) might be a good place to start.

noobly 8 years ago | |

Why not?

jason_slack 8 years ago | | |

I think because it is hard to beat the HFT systems that are already co-located at exchanges. Second, it takes at a minimum $25,000 and probably $50,000 realistically to even get started trading. Most places wont let you jump in the ring without it. Third, the OP should be prepared to lose all their money and be ok with that.

baccredited 8 years ago |

Hello - fellow software engineer who dabbles in quantitative investing here. I would start with episode 1 of Meb Faber's podcast: http://mebfaber.com/podcast/

And listen to all the episodes. Take your time, it took me about a year to get through them all.

One of my favorite guests was Gary Antonacci. I read his book Dual Momentum Investing after hearing his episode. I now use his algorithm for a sizable portion of my portfolio.

I believe all of the day-trader focused algorithmic contests like Quantopian are a joke. Don't waste your time. Quick trading strategies are a race to ZERO as quality AI systems will crush all the humans in the long term.

I have found it possible to design profitable long-only strategies that only trade once every 6 months or per year. You may find your own niches. I backtest my algorithms with homegrown ruby code and data from tradier.com (free with an account). I trade the good ones at motifinvesting.com which lets you establish a track record.

Good luck! Please share your twitter handle so I can keep tabs on you. I'm at @baccredited

ToddPanai 8 years ago | |

Thanks for this @baccredited. I found Tradier from your note. I will keep you posted about my progres.

jason_slack 8 years ago |

I am going through this right now actually. I am learning more math aggressively, pursuing a degree in Economics and since I am writing my own tools I am always refining my C++. So far I have 9 apps that make up my process and each do a different step in my process.

The Chan books are good. I'd recommend staying away from his latest book. There isn't much new content in my opinion.

E-Mail in profile if you get stuck.

Edit: I am also reading "Options, Futures, and Other Derivatives (10th Edition)"

matt_the_bass 8 years ago | |

Hi. Do you have a strong reason to write your tools in c++ and not python?

jason_slack 8 years ago | | |

I have 20+ years with c++ so I just default to that for my projects.

andersamundson 8 years ago |

Read Ed Thorp's 'A Man for All Markets'. Fantastic biography of an extraordinary mind. Godfather of stat arb/market neutral.

It is also very helpful to understand how corporate finance works. Read 10-Ks from a few company you're interested in. These can be found on the company's investor relations page or in the Edgar database. (Ideally a consumer driven company that makes stuff for people vs a bank, energy co, etc). Learn how the various financial statements interact. While you're looking at this study DCF valuation.

Get an idea of how non-quants evaluate investments. Particularly good are Howard Mark's Chairman's Letters and David Einhorn's 'Fooling Some of the People'.

Read Taleb's 'Fooled by Randomness.'

Read more Taleb.

Completely ignore financial media (eg CNBC).

tdubhro1 8 years ago |

In my experience, studying finance books is almost a complete waste of time. There are several platforms, such as Interactive Brokers, that provide APIs and market data feeds that you can get started on writing trading programs very quickly. Don't think that you are going to invent profitable trading strategies, at least not for a long time. There are lots of interesting and useful exercises that are lots of fun and can be executed with very little capital, for example, try building an algorithm that executes N shares of stock over the day and executes them at an average price that gets as close as possible to the volume weighted average price over the day. If you can do that, you'll have learned as much as most working algo developers, and if you're trying to break into a job in finance, you'll have a big advantage over most candidates who have dabbled because you will be about the only one who has built something useful rather than focusing on some hokey alpha signal.

If you really want to trade your own money for profit, yes, the space is crowded and HFTs have already found most of the profitable signals that scale, but it is still possible to find profitable signals if you source data that is somewhat new or unique and you look for signals that are capacity constrained and therefore of less interest to HFTs.

peller 8 years ago |

I might suggest you pick up copies of the books in the Market Wizards series. A good library should have them (or could get them). It's a series of interviews with some of the best in the field, across all kinds of different types of finance. They're enjoyable reads, filled with insight, and give a good broad perspective from which you can dive deeper into areas that you think might be especially interesting to you.

[1] Market Wizards - https://www.amazon.com/Market-Wizards-Jack-D-Schwager/dp/088...

[2] The New Market Wizards - https://www.amazon.com/New-Market-Wizards-Conversations-Amer...

[3] Hedge Fund Market Wizards - https://www.amazon.com/Hedge-Fund-Market-Wizards-Winning/dp/...

finfun234 8 years ago |

Learn valuation http://pages.stern.nyu.edu/~adamodar/New_Home_Page/equity.ht...

mesozoic 8 years ago |

Read some books, study various aspects via books experiments, maybe take/audit/or watch a few specific finance classes (graduate MBA level finance will be easy for you) don't do the whole degree.