The way the entire financial market operates has changed dramatically over the few years since Sequoia Capital announced that it would break with the traditional venture capital model and restructure itself around more flexible hedge fund strategies.
The shift in industry leaders represented by Sequoia Capital seems to herald the rise of quantitative hedge funds in the global financial markets. Quantitative funds utilize advanced algorithms and big data analysis to automate and execute trades efficiently, distinguishing themselves in the financial markets by being ultra-adaptive to market conditions. With automated trading systems, quantitative funds are able to execute large numbers of trades in milliseconds and to capitalize on slight market fluctuations as well. In addition, they use complex mathematical models to reduce the impact of emotional fluctuations on investors, who then can make a systematic investment plan to realize object decisions, thus assuring consistent performance under different market conditions.
Quantitative funds, an excellent financial tool, soon gained favor with financial giants like Wall Street.
1.Giants take all, while average investors discouraged to a halt
Bridgewater Associates is the world's largest hedge fund, whose flagship fund, the Pure Alpha Fund, has produced double-digit annual return for many times over the past few decades, and some even well above the market average. For example, during the 2008 financial crisis, Pure Alpha gained a positive return of nearly 10% while most funds suffered heavy losses. As of 2020, Bridgewater has nearly $160 billion in assets under management.
Two Sigma Investments attracted significant capital shortly after its inception thanks to its outstanding data analysis and algorithm-driven investment strategy. As of 2021, Two Sigma has more than $58 billion in assets under management. Its primary funds have also outperformed their counterparts, especially during periods of high market volatility.
DE Shaw Group, founded by David E. Shaw, is a hedge fund famous for its innovative algorithm trading. Oculus and Heliant, two of its funds, are both known for their high risk-adjusted returns. As of 2020, DE Shaw has more than $50 billion in assets under management. The firm is highly regarded in the market for its high-frequency trading strategies and robust risk management.
Quantitative funds, which are sought after by leading players, are unique in the financial market due to their efficient market analysis capabilities and superior risk management technology. However, despite these significant advantages, the biggest drawback of quantitative funds is also apparent —most of them are inaccessible to average investors due to typically high investment thresholds.
Medallion Fund of Renaissance Technologies, for instance, is an extremely high-performing fund in the market, usually requires a minimum investment of millions of dollars from outside investors. Similarly, other top-tier quant funds, such as AQR Capital Management and Winton Group, require individual investors to start with a minimum investment of at least $1 million. Industry data shows that the average minimum investment for quant funds exceeds $1 million, well above the thousands of dollars for more popular public equity, ETFs, or the Web3 market.
Such high threshold has turned highly sophisticated financial instruments such as quantitative funds into a carnival for a small number of high-net-worth individuals (HNWIs). Therefore, although quantitative funds have performed well in improving asset appreciation efficiency and managing risks, giants' monopoly in the traditional financial market and high thresholds have severely limited the opportunities for ordinary people to enjoy this advanced method of asset management.
Quantitative trading usually refers to trading in a quantitative rather than qualitative way. It requires studying of a large amount of historical data and combining statistics and mathematical models to come up with laws, so as to develop a trading strategy. The biggest difference between the cryptocurrency market and the traditional financial market is that the former is volatile with 7 * 24 hours of continuous trading globally. As of October 21, 2023, the international cryptocurrency market value is $2149.1 billion, of which BTC accounts for 38.5% and ETH 16.4%. There are 13,253 different types of cryptocurrencies, which provides a huge space for quantitative strategies.
2.Where there's monopoly, there's a "fire thief"
It's natural that such unfair status quo will bring out someone to break the deadlock. In the field of Web3, Gate is quietly launching an equal right revolution in the financial market. It has made advanced strategies and techniques of quantitative funds open to a wider range of investors by drastically lowering the investment threshold of quantitative funds, which has brought unprecedented opportunities for the financial sector to grow, allowing middle-income groups to get involved in the advanced investment world of traditional finance.
Currently, Gate Quant Fund products are in the promotion period with no management fees, so as to further minimize the initial costs and worries of investors. After this period, management fees, which will still be lower than the market average, will begin to be charged. Therefore, it is a rare opportunity for investors who are eager to increase the value of their assets by using advanced technologies and strategies.
This low-barrier investment strategy not only pushes the boundaries of financial services, but makes the market more inclusive. The financial market has also become much more democratized by enabling more individual investors to access asset enhancement opportunities previously available only to HNWIs. In addition, new investors are empowered to understand and cope with the complexities of quantitative investing through education and support services, which further lowers the barrier to participation.
Gate Quant Fund team expects this low-barrier access mechanism to stimulate interest in quantitative funds in the market, especially among investors who have not been able to participate due to capital constraints. As more investors begin to realize the potential and solid performance of quantitative funds in volatile markets, it is expected that this will lead to a wave of exploration and application of quantitative investment strategies.
The foreseeable future will witness that this new financial tool is accepted and recognized by the market gradually. And as more success cases and positive results unfold, more investors will be attracted to this low-barrier quantitative fund strategy.
Ultimately, Gate hopes that Quant Fund will become an important tool for popularizing modern investment strategies among a wider range of investors apart from the elite or HNWIs. With the advancement of technology and the optimization of market structure, quantitative funds are expected to become a key factor in promoting financial inclusion, achieving it in the true sense. This will open a window for the ordinary investors to share the fruits of financial innovation and enjoy the benefits of advanced financial technology.
3.What makes Web3 quantitative funds a game-changer?
As a cryptocurrency exchange that has been established for more than a decade, Gate is committed to doing the difficult but right thing. We always believe that only the safest and lowest-risk asset management method can provide investors with a steady stream of returns. With the development of the market as well as the increasingly diverse needs of users, ordinary financial products can no longer meet the needs of all users.
Through scaling up, quantitative funds can enhance the bargaining power of platform users in the financial market while reducing product risks. It is not only about the appreciation of funds, but about asset allocation, risk management, and relatively long-term financial planning.
The measures taken by Gate are in sharp contrast with those in the traditional financial market. Through technological optimization and strategy innovation, Gate has reduced operation and management costs, allowing the threshold for quantitative funds to drop dramatically to $10,000 USD. This approach is similar to the introduction of commission-free stock trading by Robinhood, an online investment platform, which dramatically lowered the financial and psychological barriers for ordinary people to participate in stock market investment and drove broader market participation.
Gate standardizes and automates complex quantitative trading strategies, making them easier to understand and execute, similar to ETFs in traditional financial markets, which provide ordinary investors with an easy way to diversify their investments in multiple assets. Besides, Gate's Portfolio Margin Mode of the Unified Account, which is similar to margin accounts offered by modern investment banks, allows investors to diversify their trades with small initial funds, thereby lowering the entry threshold and increasing the efficiency of capital utilization.
Through these innovations, Gate not only makes Quant Fund more open to ordinary investors, but contributes to the inclusiveness of the financial market as well, enabling more investors to use advanced financial tools to achieve asset appreciation. This trend of openness and democratization is becoming increasingly obvious in the modern financial market. And high-quality financial services are precisely a symbol of the gradual maturity of the Web3 industry.
4.Learn more about Gate Quant Fund
1) Advantages of Gate platform As the world's leading cryptocurrency exchange, Gate boasts rich experience in risk control and technological advantages. Since its inception, Gate has continued to innovate and expand its products and services. The daily trading volume on the platform has reached billions of dollars and the number of users has exceeded millions. The following are some of the outstanding advantages of Quant Fund:
-Professional quantitative trading team: Quant Fund is managed by professional trading teams that operate through mathematical models and algorithmic-driven investment strategies. Utilizing advanced statistical and computer technology, Quant Fund is able to accurately analyze market data, identify arbitrage opportunities, and execute trades in a timely manner to achieve stable returns.
-Excellent historical performance: According to the historical data, Quant Fund products usually endure small drawdowns (controlled within 0.03%) and produce substantial returns. For example, in 2024 Q1, USDT products and BTC products achieved annualized return of 31% and 25% respectively. Such stable returns enable investors to realize higher returns with controlled risk.
-Strong risk control capability: Gate utilizes its rich experience in risk control to ensure the safety of investors' assets through strict risk management measures. The platform's risk control system can effectively identify and avoid potential risks, providing a solid guarantee for the sound operation of Quant Fund.
-Efficient use of funds: With the new version of Portfolio Margin Mode of the Unified Account, Quant Fund significantly improves the efficiency of the use of funds. By enabling margin sharing of multiple trading pairs in one account, Quant Fund can flexibly deploy funds to minimize idleness and increase overall returns.
-Leading technology: Gate is constantly optimizing its trading technology and infrastructure to ensure that the platform is equipped to handle highly concurrent trades. Advanced algorithmic trading and high-frequency trading systems enable Quant Fund to process large amounts of data and execute trades in a short period of time, thus capturing small price differences in the market and realizing higher returns.
2) Introduction of Quant Fund products Compared with traditional crypto financial products, Quant Fund products features the following advantages:
-Considerable yield: Quant Fund adopts a market neutral strategy and can achieve long-term solid returns in various market environments. Among the first phase of Quant Fund, the expected annualized return % of USDT products and BTC products reached 31% and 25% respectively.
-Flexible redemption mechanism: Quant Fund employs a flexible redemption mechanism, which allows subscribers to enter and exit the fund at any time. Subscribers are free to manage their investment portfolios according to their needs, ensuring the liquidity of their funds.
-Quick settlement mechanism: When subscribers decide to redeem, Gate will immediately settle the interest to ensure that the investment yields are received in a timely manner. Besides, subscribers do not need to worry about the safety of their funds as the funds always remain liquid..
-Lower subscription threshold: The subscription threshold of Quant Fund is as low as 10,000 USDT or 0.1 BTC, making it easier for more investors to participate and enjoy the opportunity of asset appreciation.
3) Trading rules -Return accrual rule: Return starts to accrue once subscription is successful. which means that subscribers can receive the potential returns from the fund quickly without waiting for any buffer or confirmation period.
-Subscription rule: Profits and losses can be viewed in real time after subscription. The platform provides transparent performance reports and real-time data updates so that subscribers can have a clear knowledge of their subscriptions' performance and current returns.
-Redemption rule: Subscribers will receive their assets immediately after successful redemption request without lock-up period restrictions. Therefore, they can manage their funds flexibly and adjust their investment portfolio at any time to cope with market changes or personal needs.
-Management fee: Currently, Quant Fund does not charge management fees, which means that all investors’ earnings will go directly to them, thus maximizing investment returns.
4) Risk control A variety of risk control measures have been adopted to ensure the robustness of Quant Fund investments.
-Risk control model: Strategic risks of crypocurrencies or fund accounts are set or controlled through Gate's internal risk control model, which is based on historical data and market dynamics and effectively predicts potential risks and takes countermeasures in advance, thus ensuring the stability and security of the Quant Fund's strategy.
-Stop-loss setting: A risk threshold is preset during operations to prevent clients from suffering heavy losses. Stop-loss setting is an active risk management measure that prevents losses from mounting by automatically closing or adjusting positions when the market fluctuates beyond the predetermined range. This mechanism helps to maintain the relative stability of Quant Fund assets in times of high market volatility.
-Fiduciary funds are held in-house: As an additional security guarantee, Quant Fund's fiduciary funds are held in closed-loop custody. Funds are held within the exchange and are not mixed with external accounts, thereby reducing the risk of misappropriation or loss of funds.
-Firewall mechanism: Quant Fund and the exchange's other businesses are strictly separated through a firewall mechanism, thus ensuring that the Quant Fund's operations are independent of others and immune to their risks. The firewall mechanism also enhances the transparency and operation independence of Quant Fund.
-Merkel Tree audit: Gate uses independent Merkle Tree audits to ensure the security of user assets. Merkle Tree is a cryptographic technology that can effectively verify and protect data integrity. Through regular Merkle Tree audits, Gate is able to transparently and accurately verify the existence and security of user assets and prevent any potential fraud or misoperation.
5) Introduction to quantitative strategies -Source of return: Arbitrage of funding rates on Spot and Perpetual Futures.
-The arbitrage of funding rates on Spot and Perpetual Futures refers to conducting two break-even transactions of the same amount and in the opposite directions between Spot and Perpetual Futures at the same time, in order to earn the funding rate return from Perpetual Futures trading. When the funds fee rate is positive, long and short the same amount of Spot and Perpetual Futures respectively. Such activity, i.e. going short on Perpetual Futures to earn stable funding, is also called positive arbitrage. When the funding rate is negative, short and long the same amount of the leveraged Spot and Perpetual Futures respectively, thus earning stable funding through going long on Perpetual Futures.
