We've been very happy with the 6-month contest. The out-of-sample results of the recent crop of entries is very promising. There are a few dozen of them that have a good chance of being used in the hedge fund.
One thing we haven't liked about the 6-month contest is that it takes a long time for the winner to get paid. A 6-month contest followed by a 6-month prize period means that it's a full year from entry until the winner gets a check. We're going to fix that by paying the winner after every month. At the end of every calendar month, we will pay the winner the returns they've earned so far less a 25% hold-back, with an end-of-contest payout of the full amount. Details of this payout calculation are below.
We're making this change retroactively. The winning algorithms with positive returns are being contacted and checks are being written. Michael Van Kleek is getting a check for $1500!
Three changes going forward:
- All contests going forward will be 6-month contests. The currently in-progress 1-month contest (the October Prize) will be the last 1-month contest.
- Contest entries will no longer be permitted to use fetch_csv(). The problem with fetch_csv() algorithms is that they are very hard to evaluate for the hedge fund. They generally don't have any out-of-sample or historical data that we can use for stress testing.
- We're adopting a different stop-and-liquidate threshold. In the past, it was a relatively hard stop at $90,000. Going forward, we're going to use $95,000 as the key level. If the winner's algorithm hits $95,000, it will be evaluated by Quantopian for viability. If in our opinion the algorithm is unlikely to return to $100,000, or is otherwise no longer financially wise to run, it will be stopped. We will use tools such as the Bayesian cone projection to make that determination.
Monthly Payout Calculation
As a general description, the algo author will get their profits paid monthly, with 25% held back, and respecting the algorithm's month-end high-water mark. The high-water mark consideration means that if the algorithm declines for a month, the algorithm must recover the loss and increase again before any future payments are made. At the end of the 6 months, the author will get the full profits, with no holdback.
Example, starting value $100,000
month ending | ending balance | total cum. profit | total cum. payment | pay this month | comment 1 | $101,000.00 | $1000 | $0 | $750 | Up $1000, get 75% 2 | $100,800.00 | $800 | $750 | $0 | Down month, get $0 3 | $100,900.00 | $900 | $750 | $0 | Up, but not fully recovered, get $0 4 | $101,500.00 | $1500 | $750 | $375 | Get 75% less previous payment 5 | $102,500.00 | $2500 | $1125 | $750 | Get 75% less previous payments 6 | $102,000.00 | $2000 | $1875 | $175 | End of prize period. 100%, less previous payments
Written more formally:
The top-ranked submission will be traded live, with real money, for 6
(six) months (the "Trading Period"). The submission will be run with
a $100,000 USD account funded and controlled by Quantopian (the
"Trading Account"). The 6 months of trading will start the day after
the winner is determined, or as soon as is reasonably practicable. All
trades, trade costs, borrowing costs, and brokerage fees incurred by
the algorithm's operation will be paid/received by the account in the
same way a customer of Quantopian does real-money trading.
The winner's prize will be calculated and paid monthly. At the end of
each calendar month of the Trading Period, Quantopian will calculate
the algorithm's profit (the "Generated Profits") for that month. If
the profit is negative for the month, no payment will be made, and the
loss will be carried forward to the next month. If profit is positive
for the month, first any previous negative profits will be deducted
from the profit, and if the remaining profit exceeds $100, the winner
will be paid 75% of the remaining profit. At the end of the 6-month
prize period the profit will be calculated and any remaining unpaid
profits - 100% of the unpaid profit - will be paid to the winner. If
the account holds no Generated Profits at the end of the Trading
Period, no payment will be made. If the payments made to the winner
exceed the Generated Profits, the winner shall keep the payments
without obligation to repay them back to Quantopian.
The Generated Profits will be paid via check from Quantopian to the
registered account holder of the account who submitted the winning
algorithm (the "Winner"). The check will be mailed to Winner within
five (5) business days after the end of the Trading Period, provided
all relevant tax information has been provided.