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Funding a Trading Strategy

If you have a trading strategy, but don't have the funds to fully implement it, what can you do? You could of course try to start a hedge fund, but that's a lot of work just to try out some trading ideas. We found four possible alternatives: Algodeal, Collective2, Covestor, and Wealthfront (formerly Kaching).

Algodeal is based in Paris, France. You submit your strategy as Java code, and try it out using their data. If they decide to use it, you get 10% of profits. Cons: A lot of trust on your part is built into the relationship. 1)They can try out your algorithm and tell you they're not interested, 2)Their profits are reported by them (checked once a year by accountants they hire), 3)They can tell you at any time they've stopped using your algorithm. Pros: If they like your strategy and they use it, you can earn fairly large sums.

Collective2 is a shopping mall for strategy subscriptions, based outside NYC. For $98 per half year you can showcase your strategy on their website. A plot of performance and stats are shown to prospective subscribers. Cons: Once you submit your strategy, it takes a while to build up a performance history (they don't accept backtest data for statistics), all the while your paying. Pros: 1)You don't need to reveal your strategy algorithm, 2)You set your own price for subscriptions, 3)They seem to have lots of customers.

Covestor, based in NYC, lets other people automatically copy your trades. They charge users a percentage of profits. You get paid a fixed amount per subscriber per year, or if you're a registered investment adviser (RIA), a percentage of profits. Cons: 1)To start, you've got to have 1 year's track record verified by brokerage statements, 2)If you're not a RIA, and your performance is really good, Covestor makes a lot more money off you than they would if you were a RIA. Pros: You don't have to reveal your algorithm to anyone, only your trades are copied.

Wealthfront, based in Palo Alto, is similar to Covestor, but more like a mutual fund. Users choose one or more money managers, and their brokerage account is automatically traded. Cons: To be one of their money managers, you must be a registered investment adviser with a 3 year track record. Pros: Like a mutual fund manager, you earn a percentage of assets under management.

Which of these sites gets the most web traffic?

Service Alexa Traffic Alexa Links In
Algodeal 3,324,450 6
Collective2 58,102 117
Covestor 113,508 278
Wealthfront 245,448 18

Of the 4, Collective2 has the best Alexa traffic rank, and Covestor has the highest Alexa links in.

© 2010-2012 Stefan Hollos and Richard Hollos

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