Quantitative Trading

Quantitative trading is the use of mathematical models, statistical methods, and automated systems to make decisions in financial markets. It sits underneath almost everything that happens in modern electronic markets. When an order is sent to an exchange, an algorithm decides how to route it, how to avoid adverse selection, and how to minimize fees or market impact. When a trader builds a strategy, they rely on structured data, market microstructure knowledge, and model logic that determines when to trade, how much to trade, and how to manage risk.

Some quantitative strategies hold positions for minutes, others for days or weeks. Some operate at the portfolio level, others operate at the tick level or the order book level. What they share is that the decision-making is systematic, data-driven, and implemented with code rather than discretionary judgement.

Because of this, quantitative activity is part of nearly every layer of modern finance. Banks use it to make markets and service clients. Hedge funds use it to express investment views. Prop firms use it to deploy their own capital. Pension funds and asset managers use it to rebalance and hedge risk. Even retail brokers rely on quantitative routing logic to match orders efficiently.

With that foundation in place, it becomes easier to explain the buy side, the sell side, and proprietary trading.

The buy side refers to institutions that manage money on behalf of clients or beneficiaries. Typical buy side entities are asset managers, hedge funds, mutual funds, pension funds, endowments, insurance companies, and sovereign wealth funds. Their goal is to generate returns relative to a benchmark or mandate while meeting the needs of the clients whose capital they manage.

The buy side consumes liquidity more often than it provides it. A pension fund that needs to allocate capital to equities, or a hedge fund that needs to enter or exit a position in size, will often work through brokers or market makers to achieve this. Many buy side firms also operate quantitative strategies, including stat arb, risk premia, alternative data driven models, and execution algorithms designed to minimize market impact. The growth of systematic investing, passive index funds, and risk parity strategies has made quantitative skills increasingly important on the buy side.

The sell side consists of broker dealers, investment banks, prime brokers, executing brokers, and market makers who provide services to the buy side. These services include trade execution, liquidity provision, research, corporate advisory, capital introduction, financing, and risk transfer.

On the execution side, the sell side builds routing algorithms, smart order routers, VWAP/TWAP execution algos, and internal crossing networks. On the market making side, firms quote two-sided prices and manage inventory to facilitate client flow. On the capital markets side, the sell side underwrites IPOs, secondary offerings, bonds, and other securities for corporate clients.

Quantitative trading is deeply embedded on the sell side. Market makers use quantitative models to set prices and manage risk. Execution teams use quantitative tools to minimize slippage for clients. Routing infrastructure relies on quantitative logic to handle fragmented US equity markets across 16 lit exchanges and dozens of dark pools.

Proprietary trading firms are principal trading organizations that deploy capital for their own account. They do not manage separate client accounts and they do not provide brokerage services. The firm assumes trading risk on its own balance sheet and retains trading results after costs and compensation.

Prior to the 2008 financial crisis, proprietary trading activities were common within large investment banks. Internal prop desks used bank capital to engage in market making and directional strategies. After the introduction of the Volcker Rule under Dodd Frank, these activities were significantly reduced within banks, leading to the emergence and growth of independent proprietary and principal trading firms.

These firms vary in structure and focus. Some are technology driven market makers operating across global asset classes. Others pursue systematic multi-strategy trading or discretionary trading with defined risk parameters. What they share is a principal trading model, an internal capital base, and risk management frameworks that are aligned around the firm’s balance sheet rather than external client mandates.

QSG operates as a proprietary trading group trading firm capital allocated by an institutional investor. We do not raise capital from traders, we do not solicit external investors, and we do not manage separate client accounts. Our mandate is to deploy capital systematically and manage risk within a principal trading structure.

Our work spans quantitative research, model development, and trading execution. We build and maintain our own models, tools, and infrastructure, and we provide traders with direct exposure to live capital under defined risk parameters. Capital is allocated by the firm, risk is managed centrally, and traders participate in performance through compensation rather than personal capital contributions.

QSG is not part of the buy side or the sell side. However, we interact with both domains through prime brokerage relationships, execution services, market data providers, and the broader market infrastructure that supports electronic trading.