A common question many traders ask is, “does quantitative trading really work?”. To better answer this question we will first define quantitative trading and discuss the many benefits to this type of trading strategy as well as some complications.

Quantitative trading is a strategy that uses mathematical analyses to identify trading opportunities. These mathematical analyses use a variety of inputs such as price and volume to determine profitable investments. In other words, these mathematical models and strategies can tell the traders when to buy and sell securities. Quantitative strategies generally start with very simple models and gradually tweak and expand the inputs with continued research and backtesting. Quantitative trading is most commonly used by large financial institutions to process very large volumes, but are increasingly being used by retail traders. The majority of quantitative trading strategies rely on short-term positions. Additionally, quantitative trading often uses technology to create these mathematical models for analysis. Let’s now look into some of the benefits from quantitative trading.

## What are the Benefits of Quantitative Trading?

One of the main benefits from quantitative trading is that it optimizes profits by identifying trading opportunities and allows large scalability for financial institutions. These institutions handle such large sums of money that the consequences of a human trader misclicking or mistyping something can be catastrophic. Furthermore, the costs of employing human traders on such a large scale diminishes profitability. Using these mathematical models combined with technology has allowed institutions to execute high volumes of trades with reduced human risks and costs.

Utilizing a mathematical model to recognize trading opportunities also allows for unemotional trading and reduces any human biases through its disciplined nature. Another benefit of quantitative trading is its ability to be backtested. Since this strategy uses mathematical analyses, it is actually tested using historical market data to help determine if the strategy will be profitable in the future. Lastly, these mathematical models can continuously monitor the market in a manner unachievable by humans.