Algorithmic Trading

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Overview

Algorithmic trading studies how to turn market data and other information into rules for selecting assets, managing portfolios, and placing orders. Common approaches include statistical and machine-learning factors, deep reinforcement learning for portfolio choice or execution, market-making models, and newer language-model agents for research and strategy generation. Researchers test these systems with historical walk-forward backtests, limit-order-book simulations, and increasingly prospective or live evaluations, measuring returns alongside risk and trading costs. A central challenge is showing that apparent gains survive data leakage controls, changing market regimes, execution frictions, and the feedback effects of deploying similar strategies.

Latest papers

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149 papers27 papers in the last four weeks, up 59% on the four weeks before. 0.2% of all new papers.

Apr 14, 2026

Representation Homogeneity and Systemic Instability in AI-Dominated Financial Markets: A Structural Approach

This paper investigates how similarity in the informational representation of market states among Artificial Intelligence (AI) trading agents can generate systemic instability in financial markets. We construct a structural multi-agent market model calibrated using high-frequency microstructural moments. AI agents are modeled through a two-layer decision architecture consisting of a nonlinear representation layer and an adaptive linear readout layer. The representation layer maps raw market states into high-dimensional feature vectors, while the readout layer generates return forecasts that feed into a risk-controlled trading rule. This representation-based microfoundation separates two objects that are often conflated in the literature: representation homogeneity (the degree to which agents encode market states into similar feature spaces) and forecast overlap (the degree to which agents produce similar return predictions). We show theoretically that these two concepts are related but not equivalent, and that representation homogeneity can compress the effective space of forecast disagreement under stress even when predictions appear diverse in normal times. Through controlled factorial experiments that vary representation homogeneity while conditioning on alternative risk-aversion and learning-rate distributions, we hypothesize that increasing representation similarity amplifies synchronization in beliefs and positions, leading to volatility clustering, liquidity stress, and elevated tail risk. Our structural mechanisms suggest that low perceived volatility regimes can endogenously accumulate hidden leverage through position stickiness, which subsequently collapses when shocks trigger synchronized deleveraging. The results provide a structural foundation for macroprudential policies aimed at monitoring and preserving diversity in how AI systems represent and process market information.

Yimeng Qiu, Qiwei Han

Algorithmic TradingEmergent Behavior in Multi-Agent SystemsMulti-Agent Systems
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Apr 5, 2026

Optimal Adaptive Market Making: A Theoretical Framework for High-Yield Liquidity Provision in Perpetual Futures Markets

We develop a rigorous theoretical framework for optimal market making in perpetual futures markets with zero maker fees. We model the market maker's problem as a stochastic optimal control problem on a filtered probability space, where the controls are adaptive bid-ask spreads and inventory hedging decisions across two exchanges. Our contributions include: (i) a PnL decomposition theorem separating revenue into spread income, adverse selection loss, inventory carrying cost, hedging friction, and funding rate exposure; (ii) the Hamilton-Jacobi-Bellman equation for the joint spread-inventory-hedging control problem under CARA utility with a verification theorem; (iii) High-APY Regime Theorems characterizing profitable regions via five dimensionless parameters, culminating in a Master APY Formula; (iv) analysis of zero-fee economics on decentralized perpetual exchanges with optimal entry-exit thresholds; (v) optimal cross-exchange hedging policies with funding rate dynamics and a hedge regime trichotomy; (vi) a robustness margin quantifying parameter uncertainty tolerance; (vii) exponential drawdown probability bounds and a universal APY-VaR identity; (viii) ergodic inventory distribution under optimal control with Bayesian adaptive estimation; (ix) Kelly-optimal leverage with ruin boundaries; and (x) multi-pair portfolio allocation with diversification saturation results. Numerical analysis with twenty-three figures reveals phase transitions between profitable and unprofitable regimes. Our framework unifies and extends the Avellaneda-Stoikov, Gueant-Lehalle-Fernandez-Tapia, and Glosten-Milgrom paradigms for modern decentralized venue microstructure.

Minmin Zeng, Yi Liu

tsaftech.

Algorithmic TradingDecentralized Finance
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Apr 4, 2026

PolySwarm: A Multi-Agent Large Language Model Framework for Prediction Market Trading and Latency Arbitrage

This paper presents PolySwarm, a novel multi-agent large language model (LLM) framework designed for real-time prediction market trading and latency arbitrage on decentralized platforms such as Polymarket. PolySwarm deploys a swarm of 50 diverse LLM personas that concurrently evaluate binary outcome markets, aggregating individual probability estimates through confidence-weighted Bayesian combination of swarm consensus with market-implied probabilities, and applying quarter-Kelly position sizing for risk-controlled execution. The system incorporates an information-theoretic market analysis engine using Kullback-Leibler (KL) divergence and Jensen-Shannon (JS) divergence to detect cross-market inefficiencies and negation pair mispricings. A latency arbitrage module exploits stale Polymarket prices by deriving CEX-implied probabilities from a log-normal pricing model and executing trades within the human reaction-time window. We provide a full architectural description, implementation details, and evaluation methodology using Brier scores, calibration analysis, and log-loss metrics benchmarked against human superforecaster performance. We further discuss open challenges including hallucination in agent pools, computational cost at scale, regulatory exposure, and feedback-loop risk, and outline five priority directions for future research. Experimental results demonstrate that swarm aggregation consistently outperforms single-model baselines in probability calibration on Polymarket prediction tasks.

Rajat M. Barot, Arjun S. Borkhatariya

Department of Computer Science, State University of New York, Binghamton, Binghamton, NY, USA. · Department of Software Engineering, Arizona State University, Tempe, AZ, USA.

Algorithmic TradingPrediction MarketsMulti-Agent LLMsProbabilistic Forecasting
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Apr 2, 2026

Reinforcement Learning for Speculative Trading under Exploratory Framework

We study a speculative trading problem within the exploratory reinforcement learning (RL) framework of Wang et al. [2020]. The problem is formulated as a sequential optimal stopping problem over entry and exit times under general utility function and price process. We first consider a relaxed version of the problem in which the stopping times are modeled by the jump times of Cox processes driven by bounded, non-randomized intensity controls. Under the exploratory formulation, the agent's randomized control is characterized via the probability measure over the jump intensities, and their objective function is regularized by Shannon's differential entropy. This yields a system of the exploratory HJB equations and Gibbs distributions in closed-form as the optimal policy. Error estimates and convergence of the RL objective to the value function of the original problem are established. Finally, an RL algorithm is designed, and its implementation is showcased in a pairs-trading application.

Yun Zhao, Alex S. L. Tse, Harry Zheng

Department of Mathematics, Imperial College, London SW7 2AZ, UK. · Department of Mathematics, University College London, London WC1H 0AY, UK.

Optimal StoppingAlgorithmic TradingFinanceMaximum Entropy RL
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Mar 30, 2026

Realistic Market Impact Modeling for Reinforcement Learning Trading Environments

Reinforcement learning (RL) has shown promise for trading, yet most open-source backtesting environments assume negligible or fixed transaction costs, causing agents to learn trading behaviors that fail under realistic execution. We introduce three Gymnasium-compatible trading environments -- MACE (Market-Adjusted Cost Execution) stock trading, margin trading, and portfolio optimization -- that integrate nonlinear market impact models grounded in the Almgren-Chriss framework and the empirically validated square-root impact law. Each environment provides pluggable cost models, permanent impact tracking with exponential decay, and comprehensive trade-level logging. We evaluate five DRL algorithms (A2C, PPO, DDPG, SAC, TD3) on the NASDAQ-100, comparing a fixed 10 bps baseline against the AC model with Optuna-tuned hyperparameters. Our results show that (i) the cost model materially changes both absolute performance and the relative ranking of algorithms across all three environments; (ii) the AC model produces dramatically different trading behavior, e.g., daily costs dropping from 200kto200k to 8k with turnover falling from 19% to 1%; (iii) hyperparameter optimization is essential for constraining pathological trading, with costs dropping up to 82%; and (iv) algorithm-cost model interactions are strongly environment-specific, e.g., DDPG's OOS Sharpe jumps from -2.1 to 0.3 under AC in margin trading while SAC's drops from -0.5 to -1.2. We release the full suite as an open-source extension to FinRL-Meta.

Lucas Riera Abbade, Anna Helena Reali Costa

Escola Polit´ecnica Universidade de S˜ao Paulo

Algorithmic TradingRL Benchmarks
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Mar 29, 2026

Toward Reliable Evaluation of LLM-Based Financial Multi-Agent Systems: Taxonomy, Coordination Primacy, and Cost Awareness

Multi-agent systems based on large language models (LLMs) for financial trading have grown rapidly since 2023, yet the field lacks a shared framework for understanding what drives performance or for evaluating claims credibly. This survey makes three contributions. First, we introduce a four-dimensional taxonomy, covering architecture pattern, coordination mechanism, memory architecture, and tool integration; applied to 12 multi-agent systems and two single-agent baselines. Second, we formulate the Coordination Primacy Hypothesis (CPH): inter-agent coordination protocol design is a primary driver of trading decision quality, often exerting greater influence than model scaling. CPH is presented as a falsifiable research hypothesis supported by tiered structural evidence rather than as an empirically validated conclusion; its definitive validation requires evaluation infrastructure that does not yet exist in the field. Third, we document five pervasive evaluation failures (look-ahead bias, survivorship bias, backtesting overfitting, transaction cost neglect, and regime-shift blindness) and show that these can reverse the sign of reported returns. Building on the CPH and the evaluation critique, we introduce the Coordination Breakeven Spread (CBS), a metric for determining whether multi-agent coordination adds genuine value net of transaction costs, and propose minimum evaluation standards as prerequisites for validating the CPH.

Phat Nguyen, Thang Pham

Georgia Institute of Technology, Atlanta GA 30332, USA · Adobe Inc., San Jose CA 95110, USA

Multi-Agent LLMsLLM Agent EvaluationMulti-Agent CoordinationAlgorithmic TradingQuantitative Finance
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Mar 23, 2026

TrustTrade: Human-Inspired Selective Consensus Reduces Decision Uncertainty in LLM Trading Agents

Large language models (LLMs) are increasingly deployed as autonomous agents in financial trading. However, they often exhibit a hazardous behavioral bias that we term uniform trust, whereby retrieved information is implicitly assumed to be factual and heterogeneous sources are treated as equally informative. This assumption stands in sharp contrast to human decision-making, which relies on selective filtering, cross-validation, and experience-driven weighting of information sources. As a result, LLM-based trading systems are particularly vulnerable to multi-source noise and misinformation, amplifying factual hallucinations and leading to unstable risk-return performance. To bridge this behavioral gap, we introduce TrustTrade (Trust-Rectified Unified Selective Trader), a multi-agent selective consensus framework inspired by human epistemic heuristics. TrustTrade replaces uniform trust with cross-agent consistency by aggregating information from multiple independent LLM agents and dynamically weighting signals based on their semantic and numerical agreement. Consistent signals are prioritized, while divergent, weakly grounded, or temporally inconsistent inputs are selectively discounted. To further stabilize decision-making, TrustTrade incorporates deterministic temporal signals as reproducible anchors and a reflective memory mechanism that adapts risk preferences at test time without additional training. Together, these components suppress noise amplification and hallucination-driven volatility, yielding more stable and risk-aware trading behavior. Across controlled backtesting in high-noise market environments (2024 Q1 and 2026 Q1), the proposed TrustTrade calibrates LLM trading behavior from extreme risk-return regimes toward a human-aligned, mid-risk and mid-return profile.

Minghan Li, Rachel Gonsalves, Weiyue Li +2

Harvard AI and Robotics Lab, Harvard University . · Harvard Business School, Harvard University . · Daegu Gyeongbuk Institute of Science and Technology . +1

Algorithmic TradingLLM Agent ReliabilityMulti-Agent LLMs
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Mar 23, 2026

AI-Driven Alpha Decay: Algorithmic Homogenization, Reflexive Signal Erosion, and the Paradox of Intelligent Markets

We show that AI-driven investment strategies are inherently self-defeating at scale. As AI adoption rises, three mutually reinforcing channels -- signal crowding, performative signal erosion, and Red Queen competition -- compress excess returns. We derive the alpha half-life h(φ)=ln⁡2/[θ+δ(φ)]h(φ) = \ln 2/[θ+ δ(φ)], where θθ is the natural mean-reversion rate and δ(φ)=Nφρa/λ(φ)δ(φ) = Nφρa/λ(φ) is the AI-accelerated decay component, which is convex-decreasing in adoption. At current adoption levels (φ≈0.7φ\approx 0.7, ρ≈0.6ρ\approx 0.6), the model implies signal half-lives of 18 months versus 5-7 years pre-AI. We establish four theoretical results. First, the alpha half-life theorem: signal lifespans are convex-decreasing in AI adoption. Second, a signal extinction cascade: beyond a critical threshold φ∗φ^*, the decay of one signal class triggers accelerated competition for remaining signals. Third, a Red Queen impossibility: in the monoculture equilibrium, net alpha is identically zero despite heavy AI investment. Fourth, a fragility-efficiency tradeoff: the adoption level maximizing price discovery strictly exceeds the level minimizing systemic fragility. Empirical validation calibrates portfolio convergence to SEC Form 13F filing patterns (99.5 million holdings, 2013-2024), documenting that simulated institutional portfolio convergence increases by 42% over the sample period. We examine simulated hedge fund return dynamics showing declining cross-sectional dispersion among AI-adopting funds, and simulate the 2010 Flash Crash to illustrate fragility consequences.

Shuchen Meng, Xupeng Chen

Department of Financial Engineering, New York University. · Department of Electrical and Computer Engineering, New York University.

FinanceAlgorithmic Trading
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Mar 23, 2026

Artificial Intelligence and Systemic Risk: A Unified Model of Performative Prediction, Algorithmic Herding, and Cognitive Dependency in Financial Markets

We develop a unified model in which AI adoption in financial markets generates systemic risk through three mutually reinforcing channels: performative prediction, algorithmic herding, and cognitive dependency. Within an extended rational expectations framework with endogenous adoption, we derive an equilibrium systemic risk coupling r(φ)=φρβ/λ′(φ)r(φ) = φρβ/λ'(φ), where φφ is the AI adoption share, ρρ the algorithmic signal correlation, ββ the performative feedback intensity, and λ′(φ)λ'(φ) the endogenous effective price impact. Because λ′(φ)λ'(φ) is decreasing in φφ, the coupling is convex in adoption, implying that the systemic risk multiplier M=(1−r)−1M = (1 - r)^{-1} grows superlinearly as AI penetration increases. The model is developed in three layers. First, endogenous fragility: market depth is decreasing and convex in AI adoption. Second, embedding the convex coupling within a supermodular adoption game produces a saddle-node bifurcation into an algorithmic monoculture. Third, cognitive dependency as an endogenous state variable yields an impossibility theorem (hysteresis requires dynamics beyond static frameworks) and a channel necessity theorem (each channel is individually necessary). Empirical validation uses the complete universe of SEC Form 13F filings (99.5 million holdings, 10,957 institutional managers, 2013--2024) with a Bartik shift-share instrument (first-stage F=22.7F = 22.7). The model implies tail-loss amplification of 18--54%, economically significant relative to Basel III countercyclical buffers.

Shuchen Meng, Xupeng Chen

Department of Financial Engineering, New York University. · Department of Electrical and Computer Engineering, New York University.

Performative PredictionAlgorithmic TradingCognitive Offloading
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Mar 22, 2026

FinRL-X: An AI-Native Modular Infrastructure for Quantitative Trading

We present FinRL-X, a modular and deployment-consistent trading architecture that unifies data processing, strategy construction, backtesting, and broker execution under a weight-centric interface. While existing open-source platforms are often backtesting- or model-centric, they rarely provide system-level consistency between research evaluation and live deployment. FinRL-X addresses this gap through a composable strategy pipeline that integrates stock selection, portfolio allocation, timing, and portfolio-level risk overlays within a unified protocol. The framework supports both rule-based and AI-driven components, including reinforcement learning allocators and LLM-based sentiment signals, without altering downstream execution semantics. FinRL-X provides an extensible foundation for reproducible, end-to-end quantitative trading research and deployment. The official FinRL-X implementation is available at https://github.com/AI4Finance-Foundation/FinRL-Trading.

Hongyang Yang, Boyu Zhang, Yang She +2

AI4Finance Foundation

Algorithmic TradingQuantitative Finance
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Mar 18, 2026

Can Blindfolded LLMs Still Trade? An Anonymization-First Framework for Portfolio Optimization

For LLM trading agents to be genuinely trustworthy, they must demonstrate understanding of market dynamics rather than exploitation of memorized ticker associations. Building responsible multi-agent systems demands rigorous signal validation: proving that predictions reflect legitimate patterns, not pre-trained recall. We address two sources of spurious performance: memorization bias from ticker-specific pre-training, and survivorship bias from flawed backtesting. Our approach is to blindfold the agents--anonymizing all identifiers--and verify whether meaningful signals persist. BlindTrade anonymizes tickers and company names, and four LLM agents output scores along with reasoning. We construct a GNN graph from reasoning embeddings and trade using PPO-DSR policy. On 2025 YTD (through 2025-08-01), we achieved Sharpe 1.40 +/- 0.22 across 20 seeds and validated signal legitimacy through negative control experiments. To assess robustness beyond a single OOS window, we additionally evaluate an extended period (2024--2025), revealing market-regime dependency: the policy excels in volatile conditions but shows reduced alpha in trending bull markets.

Joohyoung Jeon, Hongchul Lee

Korea University · Mirae Asset Securities

Algorithmic TradingLLM Agent ReliabilityPortfolio OptimizationSelection Bias
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Mar 17, 2026

From Natural Language to Executable Option Strategies via Large Language Models

Large Language Models (LLMs) excel at general code generation, yet translating natural-language trading intents into correct option strategies remains challenging. Real-world option design requires reasoning over massive, multi-dimensional option chain data with strict constraints, which often overwhelms direct generation methods. We introduce the Option Query Language (OQL), a domain-specific intermediate representation that abstracts option markets into high-level primitives under grammatical rules, enabling LLMs to function as reliable semantic parsers rather than free-form programmers. OQL queries are then validated and executed deterministically by an engine to instantiate executable strategies. We also present a new dataset for this task and demonstrate that our neuro-symbolic pipeline significantly improves execution accuracy and logical consistency over direct baselines.

Haochen Luo, Zhengzhao Lai, Junjie Xu +4

City University of Hong Kong · The Chinese University of Hong Kong (Shenzhen) · University of Science and Technology of China +1

Algorithmic TradingSemantic ParsingQuantitative FinanceLLM Code GenerationNeuro-Symbolic AI
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Mar 17, 2026

FactorEngine: A Program-level Knowledge-Infused Factor Mining Framework for Quantitative Investment

We study alpha factor mining, the automated discovery of predictive signals from noisy, non-stationary market data-under a practical requirement that mined factors be directly executable and auditable, and that the discovery process remain computationally tractable at scale. Existing symbolic approaches are limited by bounded expressiveness, while neural forecasters often trade interpretability for performance and remain vulnerable to regime shifts and overfitting. We introduce FactorEngine (FE), a program-level factor discovery framework that casts factors as Turing-complete code and improves both effectiveness and efficiency via three separations: (i) logic revision vs. parameter optimization, (ii) LLM-guided directional search vs. Bayesian hyperparameter search, and (iii) LLM usage vs. local computation. FE further incorporates a knowledge-infused bootstrapping module that transforms unstructured financial reports into executable factor programs through a closed-loop multi-agent extraction-verification-code-generation pipeline, and an experience knowledge base that supports trajectory-aware refinement (including learning from failures). Across extensive backtests on real-world OHLCV data, FE produces factors with substantially stronger predictive stability and portfolio impact-for example, higher IC/ICIR (and Rank IC/ICIR) and improved AR/Sharpe, than baseline methods, achieving state-of-the-art predictive and portfolio performance.

Qinhong Lin, Ruitao Feng, Yinglun Feng +7

Beijing University of Posts and Telecommunications, China · Beijing Value Simplex Technology Co., Ltd., China · Yangtze Delta Research Institute, University of Electronic Science and Technology of China, China +1

Alpha Factor DiscoveryQuantitative FinanceAutomated Feature EngineeringAlgorithmic TradingProgram Synthesis
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Mar 16, 2026

Algorithmic Trading Strategy Development and Optimisation

The report presents with the development and optimisation of an enhanced algorithmic trading strategy through the use of historical S&P 500 market data and earnings call sentiment analysis. The proposed strategy integrates various technical indicators such as moving averages, momentum, volatility, and FinBERT-based sentiment analysis to improve overall trades being taken. The results show that the enhanced strategy significantly outperforms the baseline model in terms of total return, Sharpe ratio, and drawdown amongst other factors. The findings helped demonstrate the relevance and effectiveness of combining technical indicators, sentiment analysis, and computational optimisation in algorithmic trading systems.

Owen Nyo Wei Yuan, Victor Tan Jia Xuan, Ong Jun Yao Fabian +1

SINGAPORE INSTITUTE OF TECHNOLOGY · INFOCOMM TECHNOLOGY

Algorithmic Trading
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Mar 10, 2026

Execution Is the New Attack Surface: Survivability-Aware Agentic Crypto Trading with OpenClaw-Style Local Executors

OpenClaw-style agent stacks turn language into privileged execution: LLM intents flow through tool interception, policy gates, and a local executor. In parallel, skill marketplaces such as skills.sh make capability acquisition as easy as installing skills and CLIs, creating a growing capability supply chain. Together, these trends shift the dominant safety failure mode from "wrong answers" to execution-induced loss, where untrusted prompts, compromised skills, or narrative manipulation can trigger real trades and irreversible side effects. We propose Survivability-Aware Execution (SAE), an execution-layer survivability standard for OpenClaw-style systems and skill-enabled agents. SAE sits as middleware between a strategy engine (LLM or non-LLM) and the exchange executor. It defines an explicit execution contract (ExecutionRequest, ExecutionContext, ExecutionDecision) and enforces non-bypassable last-mile invariants: projection-based exposure budgets, cooldown and order-rate limits, slippage bounds, staged execution, and tool/venue allowlists. To make delegated execution testable under supply-chain risk, we operationalize the Delegation Gap (DG) via a logged Intended Policy Spec that enables deterministic out-of-scope labeling and reproducible DG metrics. On an offline replay using official Binance USD-M BTCUSDT/ETHUSDT perpetual data (15m; 2025-09-01--2025-12-01, incl. funding), SAE improves survivability: MDD drops from 0.4643 to 0.0319 (Full; 93.1%), |CVaR_0.99| shrinks from 4.025e-3 to ~1.02e-4 (~97.5%), and DG loss proxy falls from 0.647 to 0.019 (~97.0%). AttackSuccess decreases from 1.00 to 0.728 with zero FalseBlock in this run. Block bootstrap, paired Wilcoxon, and two-proportion tests confirm the shifts. SAE reframes agentic trading safety for the OpenClaw+skills era: treat upstream intent and skills as untrusted, and enforce survivability where actions become side effects.

Ailiya Borjigin, Igor Stadnyk, Ben Bilski +2

True Trading

AI Agent SafetyRuntime Enforcement for AI AgentsTool Access Control for LLM AgentsAlgorithmic Trading
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Mar 10, 2026

AlphaLogics: A Market Logic-Driven Multi-Agent System for Scalable and Interpretable Alpha Factor Generation

Factor investing is ultimately grounded in market logic - the latent mechanism behind observed alpha factors that explains why they should persist across assets and regimes. However, recent factor mining prioritizes factor discovery over logic discovery, producing complex alpha factors with unclear rationale, while market logic remains largely handcrafted and difficult to scale. To address this challenge, we propose AlphaLogics, a market logic-driven multi-agent system for factor mining. AlphaLogics consists of three key components: (i) Market Logic Mining: reverse-extracting market logic from historical factor libraries to construct an initial market logic library; (ii) Factor Generation and Optimization: using new market logics generated in (i) to guide factor generation, and optimizing factors with backtesting feedback; and (iii) Market Logic Generation and Optimization: generating new market logics conditioned on the initial market logic library, and refining each market logic by aggregating the backtest outcomes of its guided factors, continuously refreshing the library. Experiments on CSI 500 and S&P 500 show that AlphaLogics consistently improves predictive metrics and risk-adjusted returns over representative baselines, while producing a market logic library that remains empirically useful for guiding further factor discovery.

Zhangyuhua Weng, Shengli Zhang, Taotao Wang +1

College of Electronic and Information Engineering, Shenzhen University

Alpha Factor DiscoveryQuantitative FinanceAlgorithmic Trading
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Mar 4, 2026

Quantum-Assisted Optimal Rebalancing with Uncorrelated Asset Selection for Algorithmic Trading Walk-Forward QUBO Scheduling via QAOA

We present a hybrid classical-quantum framework for portfolio construction and rebalancing. Asset selection is performed using Ledoit-Wolf shrinkage covariance estimation combined with hierarchical correlation clustering to extract n = 10 decorrelated stocks from the S&P 500 universe without survivorship bias. Portfolio weights are optimised via an entropy-regularised Genetic Algorithm (GA) accelerated on GPU, alongside closed-form minimum-variance and equal-weight benchmarks. Our primary contribution is the formulation of the portfolio rebalancing schedule as a Quadratic Unconstrained Binary Optimisation (QUBO) problem. The resulting combinatorial optimisation task is solved using the Quantum Approximate Optimisation Algorithm (QAOA) within a walk-forward framework designed to eliminate lookahead bias. This approach recasts dynamic rebalancing as a structured binary scheduling problem amenable to variational quantum methods. Backtests on S&P 500 data (training: 2010-2024; out-of-sample test: 2025, n = 249 trading days) show that the GA + QAOA strategy attains a Sharpe ratio of 0.588 and total return of 10.1%, modestly outperforming the strongest classical baseline (GA with 10-day periodic rebalancing, Sharpe 0.575) while executing 8 rebalances versus 24, corresponding to a 44.5% reduction in transaction costs. Multi-restart QAOA (4096 measurement shots per run) exhibits concentrated probability mass on high-quality schedules, indicating stable convergence of the variational procedure. These findings suggest that hybrid classical-quantum architectures can reduce turnover in portfolio rebalancing while preserving competitive risk-adjusted performance, providing a structured testbed for near-term quantum optimisation in financial applications.

Abraham Itzhak Weinberg

AI-WEINBERG, AI Experts, Tel Aviv, Israel

Algorithmic TradingPortfolio OptimizationQuadratic Unconstrained Binary OptimizationQuantum Approximate Optimization Algorithm
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Mar 2, 2026

How do standard time series forecasting benchmarks translate to finance? A broad study of risk adjusted performance

Forecasting financial asset returns is challenging due to low signal-to-noise ratios, non-stationarity and heavy-tailed distributions. We benchmark 16 deep learning architectures for time series forecasting, including Transformers, State Space Models (SSMs), xLSTMs and recurrent hybrids, on a 15-year daily futures dataset using an end-to-end volatility-targeted Sharpe ratio optimisation task. Our results challenge prevailing assumptions in the literature. Several widely used 'state-of-the-art' architectures, including generic Transformers and SSMs, underperformed a simple AR(1) benchmark in a realistic financial forecasting task. The strongest results came from comparatively simple hybrid approaches using recurrent structures: a Variable Selection Network combined with an LSTM achieved the highest Sharpe ratio, while xLSTM showed the greatest robustness to transaction costs. These findings suggest that success on standard time-series benchmarks does not reliably transfer to finance, and that architectures tailored to the unique properties of asset returns may remain more effective than generic attention-based approaches for financial forecasting.

Adir Saly-Kaufmann, Kieran Wood, Jan-Peter Calliess +1

Machine Learning Research Group, Department of Engineering Science, University of Oxford · Oxford-Man Institute of Quantitative Finance, University of Oxford

Financial Time SeriesTime Series ForecastingForecasting BenchmarksAlgorithmic TradingTime Series Representation Learning
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Feb 27, 2026

TraderBench: How Robust Are AI Agents in Adversarial Capital Markets?

Evaluating AI agents in finance faces two key challenges: static benchmarks require costly expert annotation yet miss the dynamic decision-making central to real-world trading, while LLM-based judges introduce uncontrolled variance on domain-specific tasks. We introduce TraderBench, a benchmark that addresses both issues. It combines expert-verified static tasks (knowledge retrieval, analytical reasoning) with adversarial trading simulations scored purely on realized performance-Sharpe ratio, returns, and drawdown-eliminating judge variance entirely. The framework features two novel tracks: crypto trading with four progressive market-manipulation transforms, and options derivatives scoring across P&L accuracy, Greeks, and risk management. Trading scenarios can be refreshed with new market data to prevent benchmark contamination. Evaluating 13 models (8B open-source to frontier) on ~50 tasks, we find: (1) 8 of 13 models score ~33 on crypto with <1-point variation across adversarial conditions, exposing fixed non-adaptive strategies; (2) extended thinking helps retrieval (+26 points) but has zero impact on trading (+0.3 crypto, -0.1 options). These findings reveal that current agents lack genuine market adaptation, underscoring the need for performance-grounded evaluation in finance.

Xiaochuang Yuan, Hui Xu, Silvia Xu +2

UC Santa Cruz

AI Agent EvaluationAI Agent BenchmarksAdversarial RobustnessAlgorithmic TradingQuantitative Finance
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Feb 26, 2026

Toward Expert Investment Teams:A Multi-Agent LLM System with Fine-Grained Trading Tasks

The advancement of large language models (LLMs) has accelerated the development of autonomous financial trading systems. While mainstream approaches deploy multi-agent systems mimicking analyst and manager roles, they often rely on abstract instructions that overlook the intricacies of real-world workflows, which can lead to degraded inference performance and less transparent decision-making. Therefore, we propose a multi-agent LLM trading framework that explicitly decomposes investment analysis into fine-grained tasks, rather than providing coarse-grained instructions. We evaluate the proposed framework using Japanese stock data, including prices, financial statements, news, and macro information, under a leakage-controlled backtesting setting. Experimental results show that fine-grained task decomposition significantly improves risk-adjusted returns compared to conventional coarse-grained designs. Crucially, further analysis of intermediate agent outputs suggests that alignment between analytical outputs and downstream decision preferences is a critical driver of system performance. Moreover, we conduct standard portfolio optimization, exploiting low correlation with the stock index and the variance of each system's output. This approach achieves superior performance. These findings contribute to the design of agent structure and task configuration when applying LLM agents to trading systems in practical settings.

Kunihiro Miyazaki, Takanobu Kawahara, Stephen Roberts +1

Japan Digital Design, Inc. Tokyo, Japan · Department of Engineering Science University of Oxford United Kingdom

Multi-Agent LLM SystemsAlgorithmic TradingLLM Agent Workflow OptimizationTask Decomposition
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Feb 23, 2026

Janus-Q: End-to-End Event-Driven Trading via Hierarchical-Gated Reward Modeling

Financial market movements are often driven by discrete financial events conveyed through news, whose impacts are heterogeneous, abrupt, and difficult to capture under purely numerical prediction objectives. These limitations have motivated growing interest in using textual information as the primary source of trading signals in learning-based systems. Two key challenges hinder existing approaches: (1) the absence of large-scale, event-centric datasets that jointly model news semantics and statistically grounded market reactions, and (2) the misalignment between language model reasoning and financially valid trading behavior under dynamic market conditions. To address these challenges, we propose Janus-Q, an end-to-end event-driven trading framework that elevates financial news events from auxiliary signals to primary decision units. Janus-Q unifies event-centric data construction and model optimization under a two-stage paradigm. Stage I focuses on event-centric data construction, building a large-scale financial news event dataset comprising 62,400 articles annotated with 10 fine-grained event types, associated stocks, sentiment labels, and event-driven cumulative abnormal return (CAR). Stage II performs decision-oriented fine-tuning, combining supervised learning with reinforcement learning guided by a Hierarchical Gated Reward Model (HGRM), which explicitly captures trade-offs among multiple trading objectives. Extensive experiments demonstrate that Janus-Q achieves more consistent, interpretable, and profitable trading decisions than market indices and LLM baselines, improving the Sharpe Ratio by up to 102.0% while increasing direction accuracy by over 17.5% compared to the strongest competing strategies.

Xiang Li, Zikai Wei, Yiyan Qi +6

The Hong Kong University of Science and Technology (Guangzhou), Guangzhou, China · International Digital Economy Academy, Shenzhen, China

Algorithmic TradingReward ModelingRL Fine-Tuning
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Feb 16, 2026

FactorMiner: A Self-Evolving Agent with Skills and Experience Memory for Financial Alpha Discovery

Formulaic alpha factor mining is a critical yet challenging task in quantitative investment, characterized by a vast search space and the need for domain-informed, interpretable signals. However, finding novel signals becomes increasingly difficult as the library grows due to high redundancy. We propose FactorMiner, a lightweight and flexible self-evolving agent framework designed to navigate this complex landscape through continuous knowledge accumulation. FactorMiner combines a Modular Skill Architecture that encapsulates systematic financial evaluation into executable tools with a structured Experience Memory that distills historical mining trials into actionable insights (successful patterns and failure constraints). By instantiating the Ralph Loop paradigm -- retrieve, generate, evaluate, and distill -- FactorMiner iteratively uses memory priors to guide exploration, reducing redundant search while focusing on promising directions. Experiments on multiple datasets across different assets and Markets show that FactorMiner constructs a diverse library of high-quality factors with competitive performance, while maintaining low redundancy among factors as the library scales. Overall, FactorMiner provides a practical approach to scalable discovery of interpretable formulaic alpha factors under the "Correlation Red Sea" constraint.

Yanlong Wang, Jian Xu, Hongkang Zhang +3

Tsinghua Shenzhen International Graduate School, Tsinghua University · Pengcheng Laboratory · Shenzhen Finance Institute, Chinese University of Hong Kong

Alpha Factor DiscoveryAlgorithmic TradingAutomated Algorithm DiscoveryMemory-Augmented Agents
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Feb 11, 2026

Cross-Sectional Asset Retrieval via Future-Aligned Soft Contrastive Learning

Asset retrieval (finding similar assets in a financial universe) is central to quantitative investment decision-making. Existing approaches define similarity through historical price patterns or sector classifications, but such backward-looking criteria provide no guarantee about future behavior. We argue that effective asset retrieval should be future-aligned: the retrieved assets should be those most likely to exhibit correlated future returns. To this end, we propose Future-Aligned Soft Contrastive Learning (FASCL), a representation learning framework whose soft contrastive loss uses pairwise future return correlations as continuous supervision targets. We further introduce an evaluation protocol designed to directly assess whether retrieved assets share similar future trajectories. Experiments on 5,631 US-listed securities against 14 baselines show that FASCL attains the best future return correlation at every retrieval depth and the best rank information coefficient at every depth and horizon, leads on trend consistency in 13 of 16 cells, and gives the highest gross Sharpe ratio in a spread trading backtest at every basket size. Code is available at https://github.com/HyeongminLEE/fascl .

Hyeongmin Lee, Chanyeol Choi, Jihoon Kwon +8

Seoul National University of Science and Technology Seoul, Republic of Korea · LinqAlpha Cambridge, MA, United States · Massachusetts Institute of Technology Cambridge, MA, United States +7

Contrastive LearningInformation RetrievalPredictive Representation LearningFinancial Time SeriesFinanceAlgorithmic Trading
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Jan 8, 2026

WebCryptoAgent: Agentic Crypto Trading with Web Informatics

Cryptocurrency trading increasingly depends on timely integration of heterogeneous web information and market microstructure signals to support short-horizon decision making under extreme volatility. However, existing trading systems struggle to jointly reason over noisy multi-source web evidence while maintaining robustness to rapid price shocks at sub-second timescales. The first challenge lies in synthesizing unstructured web content, social sentiment, and structured OHLCV signals into coherent and interpretable trading decisions without amplifying spurious correlations, while the second challenge concerns risk control, as slow deliberative reasoning pipelines are ill-suited for handling abrupt market shocks that require immediate defensive responses. To address these challenges, we propose WebCryptoAgent, an agentic trading framework that decomposes web-informed decision making into modality-specific agents and consolidates their outputs into a unified evidence document for confidence-calibrated reasoning. We further introduce a decoupled control architecture that separates strategic hourly reasoning from a real-time second-level risk model, enabling fast shock detection and protective intervention independent of the trading loop. Extensive experiments on real-world cryptocurrency markets demonstrate that WebCryptoAgent improves trading stability, reduces spurious activity, and enhances tail-risk handling compared to existing baselines. Code will be available at https://github.com/AIGeeksGroup/WebCryptoAgent.

Ali Kurban, Wei Luo, Liangyu Zuo +5

1AI Geeks · 2CUHK · 3Peking University +2

Algorithmic Trading
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Dec 29, 2025

Alpha-R1: Alpha Screening with LLM Reasoning via Reinforcement Learning

Signal decay and regime shifts pose recurring challenges for data-driven investment strategies in non-stationary markets, where conventional time-series and machine learning approaches often struggle to generalize beyond historical correlations. While large language models (LLMs) offer strong capabilities for processing unstructured information, their potential to support quantitative factor screening through explicit economic reasoning remains underexplored. Existing factor-based methods typically reduce alphas to numerical time series, overlooking the semantic rationale that determines when a factor is economically relevant. We present Alpha-R1, an RL-aligned LLM framework for context-aware alpha screening. Its core mechanism, semantic gating, evaluates each candidate factor's semantic profile against a dynamically constructed market state description, selecting a sparse subset of factors whose economic rationale aligns with current market conditions. The selection model is trained via group relative policy optimization (GRPO), using realized portfolio returns as the primary reward signal. Under a 12-month out-of-sample evaluation, Alpha-R1 achieves annualized returns of 47.87% on S&P 500 and 40.57% on CSI 300 with Sharpe ratios of 1.62 and 2.23. These results, obtained under a bounded candidate-pool evaluation protocol, provide evidence for second-stage semantic factor reranking in non-stationary markets. The full implementation and resources are available at https://github.com/FinStep-AI/Alpha-R1.

Zuoyou Jiang, Li Zhao, Rui Sun +6

Shanghai Jiao Tong University Shanghai, China · FinStep, StepFun Shanghai, China · StepFun Shanghai, China

Quantitative FinanceAlgorithmic Trading
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Aug 1, 2025

ContestTrade: A Multi-Agent Trading System Based on Internal Contest Mechanism

In financial trading, large language model (LLM)-based agents demonstrate significant potential, but their decisions can be sensitive to noisy and non-stationary market information. We propose ContestTrade, a multi-agent trading system with an internal competitive mechanism inspired by institutional investment workflows. The system consists of two specialized teams: (1) a Data Team that processes and condenses massive market data into diversified textual factors optimized for constrained LLM context windows, and (2) a Research Team that produces parallelized multipath trading decisions via tool-augmented deep research. The core design is a "Quantify-Predict-Allocate" contest mechanism within each team: agent outputs are scored only after market outcomes become observable, future utility is predicted from historical scores, and resources are allocated to agents with positive predicted utility. In a post-2024 A-share backtest, ContestTrade achieves higher backtested return and risk-adjusted performance than the evaluated baselines. We further describe the temporal protocol, implementation choices, and limitations to clarify the scope of these results.

Rui Sun, Li Zhao, Zuoyou Jiang +5

1Stepfun · 2FinStep

Multi-Agent LLM SystemsLLM Agent OrchestrationMulti-Agent SystemsAlgorithmic Trading
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May 11, 2025

Can LLM-based Financial Investing Strategies Outperform the Market in Long Run?

Large Language Models (LLMs) have recently been leveraged for asset pricing tasks and stock trading applications, enabling AI agents to generate investment decisions from unstructured financial data. However, most evaluations of LLM timing-based investing strategies are conducted on narrow timeframes and limited stock universes, overstating effectiveness due to survivorship and data-snooping biases. We critically assess their generalizability and robustness by proposing FINSABER, a backtesting framework evaluating timing-based strategies across longer periods and a larger universe of symbols. Systematic backtests over two decades and 100+ symbols reveal that previously reported LLM advantages deteriorate significantly under broader cross-section and over a longer-term evaluation. Our market regime analysis further demonstrates that LLM strategies are overly conservative in bull markets, underperforming passive benchmarks, and overly aggressive in bear markets, incurring heavy losses. These findings highlight the need to develop LLM strategies that are able to prioritise trend detection and regime-aware risk controls over mere scaling of framework complexity.

Weixian Waylon Li, Hyeonjun Kim, Mihai Cucuringu +1

AIAI, School of Informatics The University of Edinburgh Edinburgh, United Kingdom · Global Finance Research Center Sungkyunkwan University Seoul, Republic of Korea · Dept. of Mathematics; Dept. of Statistics & OMI University of California, Los Angeles; University of Oxford United States; United Kingdom

LLM EvaluationQuantitative FinanceAlgorithmic Trading
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Jul 15, 2024

When AI Meets Finance (StockAgent): Large Language Model-based Stock Trading in Simulated Real-world Environments

Can AI Agents simulate real-world trading environments to investigate the impact of external factors on stock trading activities (e.g., macroeconomics, policy changes, company fundamentals, and global events)? These factors, which frequently influence trading behaviors, are critical elements in the quest for maximizing investors' profits. Our work attempts to solve this problem through large language model based agents. We have developed a multi-agent AI system called StockAgent, driven by LLMs, designed to simulate investors' trading behaviors in response to the real stock market. The StockAgent allows users to evaluate the impact of different external factors on investor trading and to analyze trading behavior and profitability effects. Additionally, StockAgent avoids the test set leakage issue present in existing trading simulation systems based on AI Agents. Specifically, it prevents the model from leveraging prior knowledge it may have acquired related to the test data. We evaluate different LLMs under the framework of StockAgent in a stock trading environment that closely resembles real-world conditions. The experimental results demonstrate the impact of key external factors on stock market trading, including trading behavior and stock price fluctuation rules. This research explores the study of agents' free trading gaps in the context of no prior knowledge related to market data. The patterns identified through StockAgent simulations provide valuable insights for LLM-based investment advice and stock recommendation. The code is available at https://github.com/MingyuJ666/Stockagent.

Chong Zhang, Xinyi Liu, Zhongmou Zhang +10

University of Liverpool, UK · Peking University, China · Shanghai University of Finance and Economics, China +6

Multi-Agent LLM SystemsHuman Behavior SimulationAI Agent EvaluationAlgorithmic Trading
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May 13, 2024

Data-driven measures of high-frequency trading

Public data do not identify high-frequency trading (HFT), and standard proxies do not separate liquidity-supplying from liquidity-demanding strategies. We overcome this measurement challenge by training machine learning models on proprietary Nasdaq data to map observed HFT activity to public intraday variables. Applying this mapping, we generate daily measures of liquidity-supplying and liquidity-demanding HFT for all U.S. stocks from 2010 to 2023. The measures largely subsume standard proxies and capture time-series variation that those proxies miss. Using proprietary Euronext Paris data, we provide evidence that the approach generalizes across markets and remains predictive years after training. The 14-year panel lets us study HFT and market quality over time. Supply-side HFT is consistently associated with greater pre-announcement information acquisition, more informed trading, and lower bid-ask spreads, while demand-side HFT is associated with the opposite patterns. During COVID-19, HFT-supplied liquidity remained resilient and its association with lower spreads strengthened.

G. Ibikunle, B. Moews, D. Muravyev +1

Edinburgh Centre for Financial Innovations, The University of Edinburgh · RoZetta Institute, Sydney · Centre for Statistics, The University of Edinburgh +4

Quantitative FinanceAlgorithmic Trading
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