Evaluation of Systematic Trading Programs

Abstract

This article is intended as a nontechnical overview of the issues that the author has found to be valuable in the evaluation of systematic trading programs, both as a systematic trader and large, institutional investor, having looked at numerous, diverse managers in this space on a global basis over the years. Some of the topics apply to discretionary traders and all types of investment organizations, although the focus is systematic trading. The author assumes that systematic trading refers to an investment program for exchange-listed instruments or spot FX that generates signals, manages positions, and executes applicable orders via an automated, previously programmed process with little or no human interference. The list of topics is not by any means exhaustive, but it should be sufficient to allow an investor to start on the path toward successful allocations with systematic trading managers. As the author hopes to make clear, systematic trading is a highly unique field with its own set of advantages over other investment approaches.