- [Instructor] Now that we understand…what algorithmic trading is,…let's look at an example.…Renaissance Technologies is one of the most famous…hedge funds pursuing algorithmic trading.…Renaissance, or RenTech as they're sometimes called,…gave an example of the type of trade they pursue…at one point.…They cited that when skies are cloudy,…equity markets tend to perform worse…than when skies are clear.…In other words,…blue skies are good for stocks,…gray skies are bad.…In theory, then,…we could buy or sell data based on weather forecasts.…The reality is that practically speaking,…it's very hard to trade on weather patterns, though.…
For one thing, they're imprecise…and the correlations are low.…Renaissance was simply using that as an example…rather than an actual practical illustration…for where you could make money.…The correlations between stock prices and weather…are really too low for them to make sense in most cases.…But here's another better example.…Algorithmic trading can be done based on the relationship…
Professor Michael McDonald provides a brief primer on securities markets. He explains how data helps investors forecast performance and automate trading. Then he moves into the practical steps: coming up with algorithmic trading rules and developing and testing an algorithm. Finally, he shows how the algorithm can be applied and eventually expanded to other securities. Anyone working in financial services, or interested in investing in the stock market, will be able to use these tutorials to understand and develop simple trading algorithms of their own.
- Define what a share of stock is.
- Classify the type of trading that attempts to capitalize on the bid-ask spread.
- Name the rule that can be used as a metric for Fed interference in the market.
- State the first step in a data analysis project.
- Identify the type of characteristic algorithmic trading relies on.
- Break down how VAR is used to manage risk.