For quantitative analysis of hedge funds, trading behavior is more based on computer analysis of price trends than subjective judgment. Fuxing company is mainly composed of three parts, namely computer and system experts, researchers and traders. Simmons personally designed the original mathematical model, and he also hired more than 70 people with doctoral degrees in mathematics, physics or statistics. Simmons meets with the research team once a week to discuss the details of the transaction and how to improve the trading strategy.
As a mathematician, Simmons knows that luck has only a half chance of success, and to beat the market must be based on careful and accurate calculation. The mathematical model of medal fund is mainly to find out the mathematical relationship between the changes of financial product prices, macroeconomics, market indicators, technical indicators and other indicators through the statistics of historical data, to find out the small profit opportunities existing in the current market, and to make profits through rapid and large-scale trading through leverage ratio. At present, some funds in the market have adopted the same strategy, but compared with Simmons' performance, they are often eclipsed.
The flagship product of Fuxing Technology Company, Medalian Fund, was established in March, 1988. In March, 1993, the fund reached $270 million and stopped accepting new funds. At present, the portfolio of the Medal Fund includes thousands of investment targets in the global stock market and other markets. The model continuously monitors the prices of major investment targets such as government bonds, futures, currencies and stocks, and makes orders to buy or sell.
When the order is placed, 20 traders will seize fleeting opportunities through thousands of quick intraday short-term transactions, and the trading volume can sometimes even account for 10% of the trading volume of the entire Nasdaq market. However, when the market is in a special moment such as extreme fluctuation, the transaction will switch to manual state.
Contrary to the popular investment concept of "buy and hold for a long time", Simmons believes that the abnormal state of the market is usually small and short-lived. Simmons said: "We buy, sell and buy at any time. We make money by being active."
Simmons revealed that the company has three criteria for the selection of trading varieties: open trading varieties, high liquidity and meeting some requirements set by the model. He said: "I am Mr. Model, and I don't want to make a fundamental analysis. One of the advantages of this model is that it can reduce the risk. And relying on personal judgment to choose stocks, you may get rich overnight, or you may lose your blood the next day. "
What Simmons is doing seems to be going beyond the efficient market hypothesis: the efficient market hypothesis holds that market price fluctuations are random and traders cannot continue to profit from the market. On the other hand, Simmons emphasized that "some trading patterns are not random, but traceable and predictable." Just as Buffett once pointed out that "the market is effective in most cases, but it is not absolute", Simmons also believes that although the market as a whole is effective, there are still temporary or partial market inefficiencies that can provide trading opportunities.
In an interview with The New York Times, Simmons mentioned a nuclear accelerator experiment he observed. "When two high-speed atoms collide violently, a huge number of particles will be ejected." He said, "The job of scientists is to analyze the changes brought about by collisions."
"I looked at the trajectory diagram formed by particle collision on the computer screen. They seem chaotic, but in fact there are inherent laws, "Simmons said. "This naturally reminds me of the stock market. Those small transactions, even if only 100 shares, will have an impact on this huge market, and thousands of such transactions will occur every day. " Simmons believes that what he has done is to analyze how complex the market will react when the wings of this butterfly flap.
"This topic may not be important to the world, but it is interesting to study the driving force of market operation. This is a very serious question. " Simmons laughs like an urchin, and his story sounds more like a scholar who is proficient in mathematics. Through complicated odds and probability calculation, he finally defeated the casino myth. The former US Department of Defense cryptographer and mathematician seems to think that there should be a simple formula to explain how to walk in front of the curve, and finding this formula is equivalent to getting the ticket to the door of wealth.