This Ex-Quant Had to Quit Wall Street to Build a 24/7 Stock Exchange | QFEX, Annanay Kapila

Intro

00:00I've worked as a quant in high frequency trading $10 to hundred billion dollars a day just you know the strategies that I was responsible for $10 billion a day is roughly the GDP of France I was earning big fat paychecks as well but I felt that I was wasting my life high frequency trading is all about exploiting market inefficiencies I saw how much money we were making due to simple structural design flaws in existing markets people in trading just want to make money so they can earn big bonuses right I'm an founder and CEO of QFX I used to work in the quan finance

00:30sector before I realized a lot of financial markets infrastructure is broken and now we're building the next 24/7 global stock exchange which is going to revolutionize trading we had two major funds one was general catalyst one was next venture partners round collision 95 million valuation we weren't making any revenues who were pre-revenue raised 95 million valuation the only point in raising venture money is if you can be massive right like truly massive then a VC will find it very hard to say Uh, you know, certainly a lot of people in

Money is Killing the Best Talent on This Planet

01:08the US, I feel a lot of them could be kind of pursuing an entrepreneurial path because their future is so set. And for me, it was really obvious to see given my background. You know, obviously I was born in India and then my friends came to the UK.

01:16You know, they left behind a lot in India to kind of start over in the UK. I studied maths at university. I started thinking about what I wanted to do with my life towards the end of my time at Cambridge. We weren't very wealthy growing up and uh job in quantitative finance, quantum trading.

01:30It just paid a lot of money. I had an option to do a PhD as well, something more impactful, but like the money was too good to pass up. And after I left Cambridge 2020, I worked at a Dutch high frequency trading firm called Flow Traders for a year and then I got headunted to an American firm called Tower Research Capital where I worked for almost 3 years.

01:46When you work as a trader as a quant, first thing I do

How HFT Really Makes Money

01:50when I get in, you know, not even when I get in, when I wake up, I have my work laptop. I check how much money we've made. In quan, everything is data driven and you're not doing trading by talking to people. You're just looking at data and you're trading from data.

02:00People ask me for like a real world analogy. I often say it's like running a car dealership. Somebody runs a car dealership. You can sell your car to them. You can buy a car from them and their job is basically to kind of have an inventory of cars ready to sell.

02:10And they buy cars at a little slightly lower price and sell cars at a slightly higher price. And the reason Quant Finance is able to make so much money is because so much volume trades in the markets. You know, the S&P 500 future on CME, that's one future, one product, trades $500 billion a day.

02:26That's like more than the GDP of any country. But I think there's a lot of cognitive dissonance amongst quants and traders that they've kind of convinced themselves because they're earning big fat paychecks and you know, I was earning big fat paychecks as well that hey, you know, we're making a lot of money.

02:40We must be doing something good for the world. High frequency trading is all about exploiting market inefficiencies like futures that expire for example. You know S&P futures expire every three months because that coincides with the time of the harvest for certain crops in the Midwest.

02:53There's no need for them to expire. If they expire, what happens is people have to sell the future, buy the next one. They pay transaction costs every time they trade and they lose money and high frequency traders make the other side of the money.

03:03No one in quant trading wakes up in the morning and they think, "Oh, how do I make the markets more efficient today? How do I lower cost of consumers every day?" People in trading just want to make money so they can earn big bonuses and I think Tower has really

The Golden Handcuffs of Big Paychecks

03:16really high quality of talent. So you know a lot of my colleagues were international math Olympiad medal winners. There's this entrance exam in India for like the top technical universities called it. A lot of them are ranked in kind of the top 50 in India when they they did this test.

03:28They're stuck in the same golden handcuffs. You know they're getting paid too much basically and they don't want to leave. Quant finance has sequestered a lot of very talented people in an industry that basically adds no value to the world and that was really the source of the guilt.

03:41I felt that I was wasting my life. Think carefully why you're doing it. Think about honestly is is this what you want to be doing in 5 7 years time. Almost nobody I spoke to said they would still be in the job in 5 years time. A lot of them were like 2 3 years and I'll go do something else.

03:59Like you know they're still there. So, are they still there because they want to be there or are they still there because they failed to re-evaluate?

But You Need Money to Chase What Matters

04:09Towards the end of my time at tower, a bunch of things happened in life that kind of aligned that made me think that maybe I should leave this and and build a startup. FTX was a very profitable business. They were backed by Sequoia, very high valuation.

04:19I don't want to defend SPF and say, you know what, he did a good thing or the end justifies the means. I think what he did was clearly wrong. He does deserve to be in prison. But I think on the innovation side is a very successful company. A lot of the product that they made was actually really good.

04:33I think another really interesting thing is that FTX did try to go down the path of US licensing and US regulation. FTX purchased an exchange in the US. Interestingly, I'd already had the idea to do this exchange. what is now Q effect like about 6 months before I have like a burning desire to improve the markets because I've worked on the other side of the markets as a quant in high frequency trading and I thought if the aim really is to make markets more efficient why don't you just improve the nature of the market and improve the nature of the design so that high frequency trading

05:05firms don't make all this money which they're just extracting from investors and the market just becomes fairer that

Leaving a Top Hedge Fund Job

05:10way towards the end of 2024 early 2025 I kind of pitched this idea to my co-founder one my best friends. We've known each other for a very long time. I guess like since we were 18 pretty much. Josh worked at Citadel, but on the engineering side, he didn't know anything about the exchange side of things, right?

05:23He just called me like, "Hey, I have this like crazy idea." I was like, you know, this is so obviously like a better market design that there no way it doesn't exist in 5 or 10 years time, right? And either the incumbents get their act together or we do it.

05:34He was like, "Yeah, like let's let's do it." He left his job at Citadel, which is one of the top hedge funds in the world. job was going pretty well and I had a lot of money saved up, I wouldn't be under any financial pressure. Once that side of the equation was solved for and I had some decent money in the bank, then I thought, okay, it's it's time to do something that, you know, I want to make my life's work.

05:53I left my job in February 2025. You know, I was really getting to the point where I was thinking, hey, you know, can anything really go wrong if I spend, you know, 2 3 4 5 years of my life, let's say, and and things don't don't really work out.

Build Something Worth Telling Your Grandkids

06:10You know, we applied for funding from Y Combinator. We applied. You know, Josh calls me and I'm like in Austria watching some opera show. He's like, "Oh, we got an interview. We got an interview. We have to come." I flew the same day back to London.

06:20They ask questions that really test whether you've got into the details of understanding where the problem lies and what the why now moment is like why is now the right time to build this idea. PG explain this to us. They don't think about things like what's the probability of this idea succeeding.

06:37They just want to know the probability is bigger than zero. Even if it's 1%, but it's a huge idea and you're a good team, they'll fund you. I'm aware that the company we're doing right now, right, it's either going to make me like $50 million or zero cuz like exchange is like it's not like a 10 mill business.

06:50Like it' never be a 10 million business. It's either zero or huge. And they said, "Is this a huge idea?" And these guys the right people to do it. The next day uh we got the offer and then we like okay and now that we have funding we can probably build it.

07:02But building in fintech is always tough because you can't launch something and if it breaks sorry to your customers, right? That's like a real breach of trust. The hardest

The Exchange Launch That Almost Broke Us

07:11day, it was during YC actually. We'd actually launched the exchange internally just to YC. We were kind of forced by our partners to launch early cuz they were like, "You need to do this otherwise you'll never get user feedback. Just just do it right right now."

07:24I like very jetlagged. So, I work with 3:00 a.m. My co-founder was there and he's like, "Oh man, the exchange has blown up." We looked at everyone's result like somebody was plus $1 million, somebody was - $1 million. We like, "Oh man, we only gave them like $100 to play with.

07:36Like, how has this happened?" So we had to basically spend all day reconstructing what had happened, figuring out how much money everyone owed and how much they didn't owe, reimbursing some people. That was the first time we took a loss as a company.

07:47We we had to say, "Oh, we're sorry. It says that you're minus $100, but we don't think this is right. We'll just give you $100." Luckily, it was still small scale. It wasn't like a big loss for us. The issue was it really hit home how difficult it is to build a 24/7 perfect fully available system that keeps track of if you run something 24/7, like anything can go wrong anytime, right?

08:06lightning bolt can happen, fire in the data center, whatever. We didn't sleep properly for days after that cuz we were like, we don't want this to happen in life, right? Cuz if we do, it's game over for us in exchange. I think the reason the partners made us do it is to make basically make us grow up and realize the gravity of the situation we were in.

08:21That was a really tough time. Both the best days of our life and the worst days of our life. We were working all the time, like 100 hours a week, very focused, uh very frenetic.

Raising at a $95M Pre-Revenue Valuation

08:30You know, there's some misconceptions maybe about how fundraising happens in Silicon Valley. It's very quick. If the check size is less than 500K, typically it's a 30-minute meeting and you get the decision like on the call or just after. If it's kind of a bigger check, then we had a first meeting and then a second meeting in person which was, you know, both for 30 minutes, let's say roughly.

08:48And day one, we had a bunch of angels. We got some money and then we stopped taking angel money. Yeah. Then it was about the bigger funds. So, you know, we had two major funds. One was General Capitalist, one was next suspension partners round 95 million valuation.

08:59We weren't making any revenues. We were pre-revenue. The only point in raising venture money is if you can be massive, but you have to be at like the huge scale, then a VC will find it very hard

Silicon Valley vs London: A Different Money Mindset

09:10to say no. And I think you guys are based in San Francisco. What's very interesting for me kind of being in London for a while, now we're in New York. I think London, New York, people are very concerned with how much money someone has, how much money they make, how much money they have in their bank account, how much money they're going to make in the future.

09:24Everything's about money. San Francisco, people really, I think, don't talk about that as much or don't think about it as much. They're much more concerned with, you know, impact, that kind of thing. And it was really useful to live in San Francisco for like 4 months.

09:35HFT strategies don't lose money, right? Like you can't even lose money doing HFT. If you lose money on a particular day, you get like an email from your boss like what what the hell happened. Silicon Valley approach is like, you know, let's try and make something that's going to make a billion dollars in 5 years time, but don't even think about the money, right?

09:48It's like

What's Actually Broken in Traditional Markets

09:50not even on the scale, which is like a new way of thinking. That was a nice part of being in San Francisco. You what we wanted to do is make sure everyone trades on the same equal playing field, level terms. If you want to buy Tesla, Treasure trades on NASDAQ exchange, but the interface is through Robin Hood and there's another intermediary which is called a clearing house which basically does the risk management and settlement, right?

10:09It's that intermediation, three separate companies involved in doing one trade that should really just be done by one company that's as most efficient as possible. That's really what we're offering on QX. Our pricing is completely transparent, right?

10:19So, we don't make money from this like profit share agreement. We just make money from fees. Our fees are as low as possible. We actually give a lot of our fees back to users if you kind of refer your friends or whatever. It's similar to Stripe if you want like a direct comparison.

10:31Stripe really reduced the frictions when it comes to doing payments. We're reducing the frictions when it comes to trading. And so much money trades through financial markets and days in ways that people don't even understand that even if you make small improvements, they have massive downstream impact.

10:44I think the best

Advice to Young People in High-Paying Jobs

10:45founders always have that, you know, that the company they're working on is their life's work, right? Like they want it to be their legacy. It's more than just money for them. And I was ready to reach that stage where I was no longer just thinking about the money.

10:55You know, there's an element of me that's you doing the current company for the money, but there's also an element of, you know, we want to go out there and be the change in the world that we want to see. And here's a very obvious change that I see now that I think not a lot of other people can work on.

11:06Is this what you want to tell your kids that you spent your life doing? Do you think this job will still be around in 5 7 years time? If you're still a young person, you should be optimizing for learning and optimizing for growth, not optimizing for how much money you're making right now.