As much as Hong Kong needs to work hard to maintain its status as an international financial hub, financial services must keep evolving to stay relevant and globally competitive. Hong Kong Science Park company CASH Algo Finance Group Limited has made an early start in leveraging technology to transform the investment and trading business and is already seeing results.
CASH Algo is a member of Celestial Asia Securities Holdings Ltd (“CASH Group”, SEHK: 1049). CASH Algo’s Executive Director and Investment Director Dr Alfred Ma says that the CASH Group knew from early on that technology was the key to stay competitive in the financial services market of the future. The group established CASH Algo in 2009 as a result.
Its mission is to integrate market experience and innovative technology to create superior and sustained value for investors. It focuses on the research and development of fintech tools such as Quantitative Investment and Algo Trading to improve the performance and stability of the services provided by the company and the group.
Computerised trading to optimise investment performance
Quantitative Investment is a process of using computer technology and mathematical models to implement investment strategy. Algo Trading describes an investment strategy in programming language and executes buying and selling of futures, stocks, funds, bonds and foreign exchange by computer systems. Quantitative Investment deduces risks and returns with discipline and systematically. The trading doesn’t involve human interference and the commands are not subject to human emotions. This makes it possible to achieve steady investment performance over the medium to long term.
Mathematical modelling, as a basis for Quantitative Investment, is usually built on economic theories or market rhythms. A model is usually created with verified historical data over a lengthy period. With mathematical models, Quantitative Investment can identify anomalies and mispricing ahead of others and help investors capture fleeting opportunities to make a profit. Having said that, no mathematical model is infallible and the market could be affected by unpredictable factors from time to time such as the results of the Brexit referendum and the US presidential election. This means the projections made by mathematical models could deviate from the actual market performance. Even then, well-defined mathematical models are still better at deducing unexpected market changes sooner to help form investment decisions for minimising losses or making profits in best-case scenarios.
Engaging academics in R&D
Alfred says there are tens of thousands of mathematical models in the market, and how well they work depends on the thinking process of the people who design the models and how they are practically applied. It is a mind-boggling discipline. CASH Algo has researchers on site at Science Park to develop all sorts of models and data analysis technology. It also works with academics from the Chinese University of Hong Kong and the University of Science and Technology who specialise in relevant fields to develop and test various models together.
Alfred says Quantitative Investment has become the key business engine for CASH Algo and the CASH Group. The company will continue to develop Empirical Mode Decomposition in technical analysis (or EMD-candlestick) and Alpha i artificial intelligence mobile trading app, integrating NASA’s patented data analysis technology, deep learning and big data. It is believed to have given the company a competitive advantage in the local financial markets.
Accelerating computerised trading in Hong Kong
He points out, however, that Quantitative Investment has already become mainstream in other international financial markets outside of Hong Kong. For example, 70% of the trading volume in the US involves Quantitative Investment. In Hong Kong, it will take a long while before Quantitative Investment is widely adopted. He thinks Hong Kong needs to find ways to promote more fintech for the long-term benefit of the city’s international financial hub status, to create a bigger pie and promote progress through encouraging competition.
For its part, CASH Algo has been organising Quantitative Investment competitions in recent years, with the hope of promoting market development and identifying talent. Alfred says young people and tertiary students taking part in the competitions are creative, bold and informed. Other than applying mathematical models and investment strategies to make profit, they also have a pretty good understanding of high-frequency trading and market making, which are highly valued trading strategies in the market. They are the kind of talent very much in demand for investment services. He hopes that the development of Quantitative Investment will take off in Hong Kong to give these budding stars more tools to play with.
At Science Park, CASH Algo has a staff of 30 people, most of whom are involved in R&D. Alfred says HKSTP’s industry events help them exchange ideas on fintech and find business partners. The company has also benefited from the activities designed to help partner companies widen their investor networks and recruit talent.
Down the road, CASH Algo will continue to work on the mathematical models and technologies for Quantitative Investment, as well as expand the application areas. Alfred reveals that the company is looking at providing Quantitative Investment technology to other investment service providers in a couple of years to contribute to Hong Kong’s fintech development.
Alpha i is a mobile app for AI trading using EMD and other technologies. The app was introduced by CASH Algo’s sister company CASH Financial Services Group.