FSA COMMITTEE
FINTECH FRIDAYS
28th May 2021
Algorithmic Trading for the Retail Investor
This week of Fintech Fridays, we dive into Australia’s new robo-advisory startup Unhedged. Formed by Ex-Googler Peter Bakker and Mike Cohen Deloitte and KPMG alumnus, Unhedged plans to use AI to deliver algorithmic returns to the retail traders. Peter Bakker developed Unhedged after spending more than a decade building algorithms to trade and believed that he could help bridge the gap of technology to allow his friends to use such algorithms. Bakker reveals that this concept of “bringing ‘algorithmic returns’ to everyday investors using AI” has resonated with angel investors and early adopters, securing $500,000 to develop his app, which is looking to launch in July.
Nearly 20 years ago, the application of algorithms in trading was close to zero. However, at current, it is estimated that more than half of the trades in the Australian market are initiated by algorithmic trading. With no emotions being involved with the processes, algorithms don't have such biases and are designed to take 100% logical and high-probability trades. Unhedged’s algorithms monitor thousands of data points a second, 24 hours a day, such that no profitable trade is ever missed on any market.
Bakker and Cohen still contend that, “They are still based on a bunch of middle-aged men sitting in a room making investment decisions. We let the algorithm decide exactly what is in and out.” For their app, they have developed two highly tested strategies which you can choose from. One is dubbed Backtested Performance of the Robust Hierarchical Risk Parity ETF Algorithm, and the other is the Momentum Algorithm.
Diving into their more popular algorithm, the Momentum Algorithm that they have created is also a very well-known and well-researched algorithm. It finds patterns in the market where if there is movement followed by further movement in the same price direction, it will have a higher chance to continue. The same can be said when its price goes down. Unhedged contends that their version of the Momentum Algorithm is able to scan 8,000 stocks and select the best on fundamental factors, be able to search for healthy balance sheets and robust operations profit to filter out companies that are not profitable long-term too.
With the newest addition to their team the CTO, Glenn Vanbavinckhove, who is an ex-CERN researcher turned hedge fund quant, Unhedged currently has an experienced team that wants to target Gen X, Millennial and Gen Z investors dissatisfied with their returns using manual trading. Currently set to launch this July, customers who sign up to their waiting list will reportedly have their monthly fee waived, with 0.49% base commission if the balance is above $5000, and a 20% performance fee if the algorithm of one’s choice does better than the benchmark.
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