GSA argues that the information that they got is too high level and they didn’t learn much-
What is going on? First, trading algorithms are the secret sauce of how hedge funds make money and they try to protect their secret at all costs.
Stealing or copying the trading algorithm can severely dry the profits because the trade becomes crowded-
So did Citadel lose a ton of money because its model got leaked?
Probably not. First, many hedge fund traders come from the same schools, got similar training, and use similar methods. Many trading strategies are developed or discovered as hedge fund investors think a like. So it is doubtful that Citadel’s model had something like a holy grain. But then small differences in a very competitive trading environment can make a big difference in the profits.
We cannot rule out that Citadel’s profits may be lower but my intuition that GSA probably used a similar model and just wanted to know a bit more. Given that Citadel have sued them, GSA won’t use that model anyway, so no gain.
Hence, it is unlikely the lawsuit will do much except the lawyers richer. Citadel won’t be able to prove that its profits have diminished and GSA probably didn’t use the model to make gains. The likely outcome is that both parties will settle.
What is the lesson?
Trading strategies make a lot of money and are protected at all costs. And every fund is trying to find the next profitable strategy by developing one or peeking through another’s strategy.
Thank You Jesus for a blessed day. Thank You Lord for all Your blessings let us be more thankful everyday- Amen
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