This article first appeared in Personal Wealth, The Edge Malaysia Weekly on June 5, 2017 - June 11, 2017

Quantitative trading used to be an investment tool limited to institutional investors with deep pockets such as hedge fund managers. But today, it is being developed by other market players for sophisticated retail investors due to the many advantages it brings. 

Tixguru founder and CEO Chris Liu says the quant trading model is able to eliminate human judgment, which may delay decision making, and execute trade orders at speeds no human trader can compete with. “It also comprehends information to forecast market movements and captures opportunities quickly. But many investors do not have access to this tool because they do not have a huge amount of investment capital,” he adds.

Liu’s idea to liberalise the quant trading model came after personally using and developing this product with his team over the last decade. Using different trading strategies and forms of leverage, the platform has chalked up an impressive internal rate of return of between 80% and 500% in the past few years. 

Liu has continued to improve on his quant trading model so it constantly outperforms his competitors. Two years ago, a private wealth management firm in China with US$60 million of assets under management employed his model to trade for its clients and the results were very encouraging. 

This spurred Liu to create a quant trading model that would give more investors access so that they could benefit from the system like institutional investors. He founded Tixguru — the first platform in Asia to combine quant trading with robo-advisory services and powered by artificial intelligence (AI) technology. 

Targeting high-net-worth individuals (HNWIs), Tixguru offers its technology to third-party organisations with fund management licences, which will ride on the platform to manage their wealth. The platform provides fully automated execution of trading strategies as well as portfolio management based on AI-powered forecasts that are able to predict the movements of various investment classes. The platform also offers stock recommendations and portfolio management for non-HNWIs through brokerage firms.

What is unique about Tixguru’s quant trading model and robo-advisory platform is that it allows investors to assign different risk levels to the various portions of their portfolio, says Liu. “Other robo-advisory firms only assess their clients’ risk level and invest accordingly. Our quant trading model and robo-advisory platform is different. We have different strategies that come with different levels of risk and return.

“For instance, the investor may want to allocate 30% to a high-risk strategy, 40% to a medium-risk strategy and the rest to a low-risk strategy. A high-risk strategy may generate a triple-digit return while a low-risk strategy may see a double-digit return. This combination of strategies would bring the investor the returns he wants.”

Liu wants to introduce this concept of combining different strategies with different risk levels to more investors. He thinks those who adopt such a concept will have a better chance of achieving their desired returns.

James Ong, business development director at Tixguru, says this concept not only helps investors achieve their desired returns but also manage risks better. As the quant trading model allows traders to use leverage, some investors may get too greedy and forget that high leverage increases risk and return levels proportionately. 

“Our track record of 80% to 500% returns is a result of using moderate leverage of about 10 to 20 times. By combining trading strategies, investors can set a different leverage for each strategy too. This could help them manage risk better, and not put all their eggs in one basket, which can be wiped out in a blink of an eye,” he adds. 

Ong says Tixguru’s quant trading model actively trades stocks, commodities and indices. However, if a fund manager who employs the system is interested in bonds, he will be able to invest in them by feeding the system relevant market information and the model will generate an investment strategy for the asset class. 

Quant trading has taken some blame for unusual market movements such as the pound sterling “flash crash” on Oct 7 last year and the Dow Jones Industrial Average plunge of almost 1,000 points in 20 minutes on May 6, 2010. Liu says short blips in the market are a common trend because a lot of the US financial institutions use the quant model to trade. He expects to see more of these in the future. 

“When there is a short blip in the market, machine traders are able to profit from it because their systems are fast enough to react. With Tixguru, we hope more investors will be able to capture and profit from such short blips,” he says. 

Liu says the company aims to be a platform provider rather than a fund management firm because it is eyeing partnerships with other players in Asia. “If we were to be a fund manager, it would require a lot of licensing as different countries have different sets of regulations. Instead, we want to be a platform provider for private banking and wealth firms in Asia so that we can reach out to more investors in the region.”

Ong explains how the company breaks down the quant trading model for investors. It is eyeing two segments of the market — institutional and retail investors. 

“Institutional investors such as private banking, wealth management firms and fund managers will be able to employ our quant trading model directly. The model will execute trade orders according to the rules and strategies that the fund manager sets. This will help them allocate more time and energy to developing new strategies or products, thereby increasing their productivity,” he says. 

“For retail investors such as sophisticated and average investors, they may not have enough capital to trade using the model. So, we offer an additional feature of providing stock recommendations and portfolio management for them.”

Ong says Tixguru will partner local brokerage firms to offer this feature and tap their pool of investors. Investors will be able to receive forecasts of stock movements through a website or mobile application. 

“For instance, if the investor holds 10 stocks in his portfolio, he will receive stock recommendations via the mobile app. The app will also help him with portfolio management by suggesting which stocks to buy, keep or sell,” says Ong. 

For example, when the robo-adviser screens stocks, it will be able to determine 20 stocks that have a high probability of trending upwards and 20 stocks that have a high probability of trending downwards. 

“Retail investors will have a portfolio of stocks. The robo-adviser will manage this portfolio and suggest how much investors should allocate to each stock. Investors can decide which stocks to buy or sell according to their dollar value,” says Ong.

“Sometimes, the stocks may be too expensive for them. Through the recommendations, investors will have a better chance of buying stocks that may rise and selling those that may drop in the next few days or weeks.”

The minimum investment amount for institutional and retail investors to employ the model and subscribe to the additional feature will be determined by Tixguru’s partners, he says. However, he believes that retail investors who have a few thousand ringgit to invest will be able to subscribe to the stock recommendation and portfolio management feature. 

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