Monday, January 2, 2012

Intellectual Property in the financial trading industry

A lot of associates/friends have mentioned stuff around Intellectual Property, so here's my standpoint around it. It is usually more practical for institutions to maintain trade secrets unrevealed than to attain IP, because once a trading logic/exploit enters publicly domain its edge erodes due to increased competition or in some cases become vulnerable to counter exploits (counter exploit example off Game Theory).

Here's a hedge fund, AQR Capital Management, who's made money off exploits off game theory..
AQR undertakes extensive research, often in conjunction with major educational institutions, to analyze and calibrate discrete market inefficiencies that when aggregated, can be successfully exploited through dynamic exposure strategies.

Markets change over time, without warning. Inefficiencies that have made a boatload of money could disappear over night, literally. So I believe the key still lies in continuous R&D for new inefficiencies, opportunities for profit; like any other successful business model. There is no ever lasting magic bullet.

0 Reflections: