The Legend of Jim Simons

Introduction

Do you know who is the most successful investor of all time, chances are that you will take famous names such as Warren Buffett or peter lynch.

However, it is Jim simons a mathematics professor turned wall street legend who founded the famous renaissance technologies and the supeR successful medallion fund. the hedge fund has an enviable track record of producing an annual return of 66 before fees over a period of 30 years
making it one of the most successful funds ever in history.

Sounds incredible right,
but Simon’s popularly known as quant king made this incredible feat possible with the innovative quantitative analysis method employing algorithms to understand patterns in the stock marke.t so let’s get to know about the early life of this phenomenon James harris simons or Jim Simons was born on april 25th 1938 in newton Massachusetts in a middle-class family his dad owned a shoe factory and Jim was their only child
from a very early age, Jim displayed a strong inclination towards mathematics from the age of 3.

He started solving complex math problems his parents one day were astonished to find him dividing numbers by 2 from 1024 onwards without realizing this three-year-old math prodigy had solved a mathematical paradox posed by the famous Greek philosopher Zeno, as a teenager Jim
started working in the basement of a garden supply store, but he was so terrible at the work that the store owner demoted him to the role of a floor
sweeper when his supervisors asked him about his future plans.

Simon said he wanted to study mathematics at the nearby Massachusetts Institute of technology or mit they scoffed and thought that the guy
who couldn’t remember where to put the sheep manure wanted to be a mathematician at mit of all the places destiny however was favoring his path.

Simon’s parents wanted him to become a successful doctor,but Jim chose to pursue his passion for mathematics and successfully enrolled at
mit to study his favorite subject while in college he would be immersed in connecting formally and cracking equations for hours at a stretch.

One time he saw two of his professors involved in an in-depth discussion about a math problem at a cafe late at night he instantly realized that this was a life he wanted for himself one that involved cigarettes coffee and map at all times jim earned a bachelor’s degree in mathematics from mit and joined the university of California Berkeley where he quickly got a phd in 1961 at just the age of 23.

His work during that time is considered to be the cornerstone of modern geometry simons knew he had to become a career mathematician and so he chose academics as the way ahead his stellar record ensured that he soon had a teaching job at his alma mater mit after a year he joined Harvard
university where his informal and humble approach to teaching was a big hit among students however in a couple of years, simons was tired of teaching and the predictable way of life he yearned for a fresh challenge luckily so he found an interesting break in 1964 when he joined the research
staff at the institute for defense analysis in Princeton as a code breaker funded by the government idea hired mathematicians to help crack Soviet spy codes in this position Simon’s had a great time developing mathematical models to understand heavy data and patterns he succeeded in creating a super-fast code-breaking algorithm, that could attack special cryptographic problems.

The CIA was immensely benefited by this model in breaking the soviet messaging system as a result, simons became an overnight star at the idea and the code-breaking community idea allowed its researchers to pursue their own research projects as well simons utilize this opportunity to crack
a problem about area minimizing surfaces and higher dimensional analogs for which he was awarded the american mathematical society’s Oswald weblink rise in geometry in 1976.

Simon’s left the idea and became a chairman of the mathematics department at stony brook university in new york in 1968.

Here he worked with other accomplished mathematicians towards significant developments in quantum field theory and condensed metaphysics but then he did something that changed his whole life always eager to try something new and different simon’s set his eyes on the stock market with the desire to make more money using the incisive mathematical skills he decided to leave academia in 1978 at the age of 40 and founded a hedge fund management firm called manometric he realized that he could use mathematical models to recognize patterns and analyze financial data
to help him in the task he recruited some of the best minds.

He had known from his stints at the idea and stony brook university which included mathematicians data modeling experts code breakers scientists and engineers he also invited an old friend from ida Leonard Baum to work with him as a partner Leonard himself was a math genius and the creator of the famous bomb wealth algorithm together they felt that an algorithm-based predictive model would be extremely handy to monitor the financial market this was the year 1979 way before the digitized era they used to stick lots of paper graphs and charts over the walls in their small office in long island.

The algorithmic approach immediately paid dividends in the currency market and they started to make a lot of money one day while both friends were relaxing at a beach bomb suddenly sprung up saying the algorithms signal that the British pound will go up tonight wearing their swim by itself they rushed out to buy a lot of British pounds which at that time was quite low neither of them knew a thing about british policies but amazingly the prediction did indeed come true and the pound began to climb rapidly soon the business was growing by tens of millions of dollars and in 1982 the company was renamed renaissance technologies simons realized the importance of dataearly on so he bought a ton of books from the world bank data from commodity exchanges and currency records from way before world war ii in order to match the historical data to the volatile current times he purchased several costly computers that could not just store heavy volumes of data but analyze all market movements to come up with patterns that could be applied to the present times the team was able to come up with amazingly accurate live market prices unseen or unheard of in the financial market ever the mathematical models the company developed worked better and better each year and by 1988 simons decided to base the company trades entirely on these models his complete reliance on quantitative analysis and algorithmic investment strategies earned him the popular title of the quant king a maverick who revolutionized trading and made unprecedented waves on wall street simons spearheaded an innovative trend that was far ahead of its times in the modern era a predictive theory that is widely used in machine learning resembles his original method today renaissance technologies manage 55 billion dollars and medallion fund a black box strategy only open to renaissance owners and employees are  worth 10 billion dollars for 30 years between 1988 to 2019 medallion fun produced a stunning annualized 66.1 gross return which means if you invested hundred dollars in the fun in 1988 it would have become a whopping 408 million dollars by 2018 fascinating right the medallion fund has also crushed the benchmark s p 500 stock index almost every year losing money only once in so many years it generated 76 returns in the year 2020 98.5 returns in the year 2000 and 82.4 returns in the year 2008 creating an all-time market records simon’s retired as the company’s CEO in 2009 and became chairman of its board in 2021 Forbes estimated the net worth of the 84 year old hedge fund legend at 23.5 billion dollars making him the 24th richest person in the united states he now dedicates most of his time to philanthropy along with his wife marilyn simons founded the simon’s foundation in 1994 which has grown into one of the largest charitable institutions to focus on the support of basic research in mathematics and the sciences simons is also the founder and chairman of math for America whose mission is to improve mathematics education in u.s public schools the legend of Jim simons will continue to inspire generations to come and he will always be remembered as the greatest money maker of all time.

Introduction

Iceberg orders in Zerodha are a way to break down a large order into multiple smaller orders.

Let’s say, you have to buy 10,000 shares of Reliance.

So, instead of placing one giant order of 10,000, you can place 5 orders of 2000 quantity each using Iceberg orders.

Iceberg orders were originally created for big institutions and High Net Worth (HNI) clients who deal with huge order sizes and they don’t want people to know that they’re placing these big orders.

Hence, they broke the big quantities into multiple small orders so that people would not know that there is a big participant out there and hence their actions should not influence the price of the script that they are trading.

Now, thanks to Zerodha, Iceberg orders are available to retail traders as well.

Let’s take an example

Please watch the video below to understand how to place Iceberg orders but if you can’t just read on.

Iceberg orders look like this.

In this example, notice how an Iceberg order can be used to break down the quantity of 1000 into 4 orders of 250 quantity each.

So, what happens when you place this order?

Zerodha will place the first order of 250 quantity and wait for it to get executed.  If it executes, Zerodha will place the second order and so on and so forth. Basically, these orders are placed sequentially – one after the other.

Important facts about Iceberg orders

Brokerage

Breaking a large order in multiple smaller orders look like fun and convenient but there is also a cost associated with it.

Because for every leg of the order, you have to pay separate brokerage.

So, if we take the same example as above, if you had place a regular order of 1000 quantity, you would have paid only 20 rupees in brokerage. However, if you use Iceberg orders, now you have to brokerage for each leg (i.e 4 x 20 = 80 rupees).

This might seem like a small amount now but if you a regular trader, then this will add up over time.

Validity

You can also specify the duration for which the Iceberg order will be valid.

In this case, for example, you can say that if my order doesn’t get execute in the next 5 mins, just cancel it. This feature might be useful for those who are expecting a quick move in a stock but if that doesn’t happen, they don’t want to stick around for that.

Just cancel the whole things and move on to the next trade.

Benefits of Iceberg Orders

Let’s summarize the benefits of Iceberg orders:

  • Breaks down a large order into smaller parts
    • This can be very helpful for big institutions and HNI traders who do not want everyone to know that they are buying or selling a big quantity
  • Great for overcoming order freeze limits
    • Exchanges have restricted the maximum quantity for derivative contracts
    • For Nifty, it is currently 2800 and for Bank Nifty, it is currently 1200
    • So, if you have to place an order above this quantity, you need to manually place several regular orders
    • But with the help of Iceberg orders, you can just place one order that will take care of the problem
    • This is of great help for expiry day trading, where the quantities can easily go in thousands
  • Canceling one leg automatically cancels the rest
    • If any leg of an Iceberg is cancelled, all the remaining pending legs that are yet to be placed will be automatically cancelled.
    • Similarly, if the price of any leg of the Iceberg is modified, the new price will automatically be applied to all the pending legs

Limitations of Iceberg Orders

Here are the key limitations of Iceberg orders

  • Higher brokerage
    • As we saw, brokerage is charged separately on each leg
    • Therefore, the brokerage charges will add up over time
  • Availability
    • Iceberg orders are available for NSE equity, F&O, currency, BCD segment and BSE equity only.
    • Iceberg order type isn’t available for MCX yet.
  • Pre/Post market
    • Iceberg orders and minute validity are not supported during pre-open & post-market sessions.

Final thought

Iceberg order is a great functionality for active traders who deal with heavy quantities but if you work with smaller quantities, it doesn’t make any sense to pay extra brokerage for using Iceberg orders.