About algorithmic trading

What is algorithmic trading?


Algorithmic trading is the process of using computers programed to follow a defined set of instructions (an algorithm) for placing a trade in order to generate profits at a speed and frequency that is impossible for a human trader. The defined sets of rules are based on timing, price, quantity or any mathematical model. Apart from profit opportunities for the trader, algo-trading makes markets more liquid and makes trading more systematic by ruling out the impact of human emotions on trading activities. In layman terms, algo trading completely eliminates the need for manual intervention. Once the rules of the logic have been coded into the algo, it will carry out end-to-end automation of trading ie. tracking the market for opportunity, placing the order, monitoring stop loss and risk, squaring off when required. Algos can be used for trading on any exchange segment- equities, F&O, foreign exchange, commodities as well as cryptocurrency. Indian exchanges like NSE, BSE, MCX, NCDEX, FX, or crypto exchanges like BITMEX, BITFINEX, etc.




How does it work?


Consider the below example:

  • Buy 50 shares of a stock when its 50-day moving average goes above the 200-day moving average. (A moving average is an average of past data points that smooths out day-to-day price fluctuations and thereby identifies trends.)
  • Sell shares of the stock when its 50-day moving average goes below the 200-day moving average.
Using this set of two simple instructions, it is easy to write a computer program that will automatically monitor the stock price (and the moving average indicators) and place the buy and sell orders when the defined conditions are met. The trader no longer needs to keep watch for live prices and graphs, or put in the orders manually. The algorithmic trading system automatically does it for him, by correctly identifying the trading opportunity and executing the trading order.




What are the various applications of algorithmic trading? For whom is algorithmic trading useful?


  • Mid- to long-term investors or buy-side firms – pension funds, mutual funds, insurance companies – use it to purchase stocks in large quantities when they do not want to influence stock prices with discrete, large-volume investments.
  • Short-term traders and sell-side participants – market makers (such as brokerage houses), speculators and arbitrageurs – benefit from automated trade execution; in addition, algo-trading aids in creating sufficient liquidity for sellers in the market.
  • Systematic traders – trend followers, hedge funds or pairs traders (a market-neutral trading strategy that matches a long position with a short position in a pair of highly correlated instruments such as two stocks, exchange-traded funds (ETFs) or currencies) etc. – find it much more efficient to program their trading rules and let the program trade automatically.




How is it better than manual trading?


When trading manually, a trader’s usual work flow will be as follows.

  • Looking at charts, quotes or news and trying to find a trade signal as per your strategy.
  • Filling in the order details when you DO find a trade signal (money time! Yay!)
  • Monitoring your trades to see if they reached your target or went in the opposite direction (as they often do)
  • Closing positions to either book profits or cut losses
All these tasks need to be carried out immediately and accurately. Sometimes, even simultaneously. Moreso, if the trader would like to test/implement one more strategy, it is extremely difficult to manage both. In these cases, algorithms perform all the heavy lifting work of performing these tasks.




What are the advantages of algorithmic trading?


  • Faster & more accurate: Algos can track even a small change in prices & execute orders faster than humans can.
  • Processes large amounts of data: Suppose a trader needs to track 1 minute data for 10 stocks. Doing this manually has a very high risk of error. Using algorithms completely eliminates the risk. Algorithms can also be programmed to process multiple indicators for multiple assets without any loss of accuracy.
  • Eliminates human biases & sentiments: Algorithms will follow the instructions given, without allowing any bias or sentiment to influence trading decisions.
  • Allows for multitasking: Algorithms can constantly run & execute orders according to given instructions, without any manual intervention. This means that traders can be free to create more strategies, take breaks or spend time doing other things.




What are the disadvantages of algo trading?


  • Algo systems work extremely fast. So if a position enters into a loss situation, the overall losses could be substantial. This risk can be minimized by appropriate risk management measures.
  • These systems are inflexible. They will operate in exactly the manner you instruct it to. So if the market dynamic has changed, the algo would need to be updated as well.




Is it legal in India?


Yes. It is legal in India.




Are any permissions required for algo trading?


The regulation demands that the broker should take the approval on your behalf, you as a retail trader cannot go to the exchange and ask for approval.





Automation of trading strategies

Who do I contact for help?


You can contact our marketing team at algo@hlinvestrade.com




Do you have ready-made, off-the-shelf algos that are profitable?


No. We are a services company and we develop algo systems based on your requirements. We do not have any product which we sell off-the-shelf.




Do you guarantee profits from the algo?


We only assure that the algo system will work as per the requirement document. We are not responsible for any financial performance.




For any changes in my algo, do I need to pay?


We make the algos as parametrized as possible, so that you do not need any changes in the algo. Despite this, if there are still changes required, then we can develop those for additional costs.




What maintenance is included?


Maintenance includes troubleshooting/bugs in the delivered system. We provide complimentary maintenance for 1 year.




What do I do in case of error message?


You can contact our support team at support@hlinvestrade.com You would also get a dedicated support number for urgent assistance.




Can the Arque Algo trader be used to trade on behalf of multiple Clients?


Yes. We have built multiple Client code systems for our clients.




Can the Arque Algo trader connect to multiple brokers?


Yes. We have built multiple broker interfaces in one system for our clients.




Can I do algo trading using my stock broking account?


Yes we can work with any Broker who can provide you with an API. You do not need a seperate account.




Do I need advanced computer systems to run algos?


No. A basic laptop or desktop system with 4 GB RAM and a dual core CPU is good enough to run Arque Algo Trader. You can run Arque Algo Trader from your cloud hosting service as well.




On which systems can Arque algos be supported?


We can develop algos on any system which allows access to market data and orders through APIs. We have currently developed interfaces with Omnesys NEST, Symphony Presto, Zerodha, Upstox, etc.




Can you build algos for options trading / execution?


Yes. We have rich experience in creating algos for options trading / execution.




Can you build an algo based on technical indicators?


Yes. On any timeframe and with multiple time frames as well.




How is it different from any other algo trading software?


Our algo systems are much more stable, scalable and customizable than other systems. Amibroker based algos have many limitations, are not scalable or customizable beyond a point, and have very high latency, leading to poor execution on account of higher market impact costs. Of-the-shelf broker algos are rigid and not customizable at all.




How does it work?


We create a customized algo trading system completely based on your requirements. The customized Arque Algo Trader connects to your Broker systems via APIs. Our Algo systems are much more stable, scalable and customizable than other systems.




What do we do?


We create Customized Algorithmic trading systems for traders, brokers and asset managers. We make both Execution algorithms as well as alpha generating algorithms across equity, derivatives, currency and/or commodity markets. We help traders improve their trading strategies using Machine Learning models. We help brokers and traders set up Algorithmic trading desks from the ground up.




Can you do coding for Amibroker or Metastock?


Yes, we do offer this as a service to our clients.




How much do you charge for automation?


Please get in touch with us at algo@arque.tech for an exact quotation.





Backtesting

What is backtesting?


Backtesting is a method that helps you assess the viability of your trading strategy by discovering how it would play out, using historical data.




Why should I backtest my trading strategy?


Backtesting allows a trader to simulate a trading strategy using historical data to generate results. It analyses the risk & profitability of a strategy before the trader decides to risk it in the live market.
If backtesting yields positive results, the strategy is fundamentally sound and is likely to yield profits when implemented in reality.
If it yields suboptimal results, it will prompt the trader to alter or reject the strategy.




How do I know that my strategy can be backtested?


As long as a trading idea can be quantified, it can be backtested. Some traders and investors may seek the expertise of a qualified programmer to develop their idea into a testable form.




What do I need to backtest my strategy?


Typically, this involves a programmer coding the idea into the proprietary language hosted by the trading platform.




What all asset classes can be backtested?


Our services stretch to backtesting trading strategies for Equity, Equity Derivatives, Commodities and Currency Derivatives.
If you find someone whose services include other asset classes, as well, do let us know.




Can investing strategies be backtested?


Yes. We have the tools, data, and capabilities to backtest fundamental data-based investing models.




Can I backtest options strategies?


Yes. We have the tools, data and capabilities to backtest options trading strategies as well.





The ideal backtest chooses sample data from a relevant time period of a duration that reflects a variety of market conditions. In this way, one can better judge whether the results of the backtest represent sound trading or a fluke.

We can backtest most strategies over the last 10 years.




What will be the output of backtesting?


The output of a backtest is comprehensive. It includes:

1) A trade sheet

2) Summary statistics, including CAGR, Win Ratio, Drawdowns, Risk-return statistics, etc.

3) Graphs like the Equity Curve, Drawdowns, Profit tables, etc.




Can you optimize stop loss, profit booking and other strategy parameters?


A programmer can incorporate user-defined input variables that will allow the trader to "tweak" the system.
An example of this would be in the simple Moving Average Crossover system. The trader would be able to input (or change) the lengths of the two moving averages used in the system.
The trader can backtest to determine which lengths of moving averages would have performed the best on the historical data.




How much do you charge for your backtesting services?


Please get in touch with us at algo@arque.tech for an exact quotation.





Decision Support Tools

What are the different kinds of Decision Support Tools available?


Decision support tools are designed to keep you well-informed, and help you make better risk management decisions. Our services include-but are not limited to-custom screeners, Arque ML filter and Arque FundaBot.




What are custom screeners?


Custom screeners scan the entire stock & derivatives universe to calculate custom metrics, like IV changes for Options, OI changes, Stocks near 52-week High/Low, etc. These metrics are then displayed on a single screen for you to see.




Where do you source market data for the screeners?


We usually get the data directly from your brokers API. At other times, we take it from the API of a third-party data vendor.




What is the use of Arque ML Filter for Traders?


Arque ML Filter is a proprietary machine learning based filter that helps traders eliminate 'bad trades'.
A trader can add the ML filter in front of their trading strategies via our API or GUI. It will help the strategy determine if it should enter a trade or not.




Do you have any ML tools for Investors?


Yes. The Arque FundaBot provides proprietary scores for all stocks on the basis of their Management, Growth, Quality, Price, Industry, Red flags, etc.
Knowing these scores, Investors would be better informed before they decide to pick their next stock.




Can Arque Tech develop something different for me?


Yes, we can customize and develop any tool (machine learning based or otherwise) for your specific use case.




How much do you charge for the Decision Support Tools?


Please get in touch with us at algo@arque.tech for an exact quotation.




For whom are these tools useful?


The Decision Support Tools can be used by Traders and Investors alike. Anyone who wishes to study quantified market parameters before taking a position, can benefit from them.





Setting up an Algorithmic trading desk for Brokers

I am a broker who wants to switch to Algorithmic Trading from Proprietary trading. Can you make it happen?


We have helped brokers with turnkey consulting to setup an Algorithmic Trading desk from the scratch. Our services include selecting the appropriate technology vendors, setting up the servers, developing custom trading algos, training & hiring traders to use these algos, and maintenance.




I am a broker who wants to offer Algorithmic Trading Service to my clients. How can you help me?


We have helped brokers with turnkey consulting to setup an Algorithmic Trading desk from the scratch. Our services include selecting the appropriate technology vendors, setting up the servers, developing custom trading Algos, training & hiring traders to use these algos, and maintenance.




Can you develop multi-client execution systems for my PMS?


We have done it in the past, and we can do it again!
Our execution systems are adept at providing similar fills to all clients (one client doesn't get better fills than others). Our market impact models also help minimize slippages for a large number of clients and/or quantities.




What are your training services?


We provide training in Machine Learning for financial markets, algorithmic trading and risk management.





Machine Learning Consulting

What can Machine Learning achieve?


Machine Learning (ML) is a specialized sub-field of Artificial Intelligence (AI).
In this field, traditional programming rules do not operate; very high volumes of data are enough to teach the algorithms to create better computing models.

In other words, Machine Learning aspires to mimic the human brain. It learns by observing.




What does Machine Learning imply for my business?


ML solutions can aid the shop-floor managers to make quick and accurate decisions on the fly without the intervention of C-Level executives. The top line business leaders will only be called in for exceptional situations.
ML has even proven to generate accurate solutions when perfect data did not exist. Given the growth of smart algorithms, Business Analytics will now move beyond Descriptive and Predictive, and gradually launch Prescriptive Analytics as the sole preoccupation of business leaders.




What kind of data is required for ML?


Machine Learning works best for large, voluminous data. It doesn’t matter if the data is structured or unstructured.




What industries can you provide machine learning solutions for?


We have diverse experience in designing ML solutions. In the past, we have worked with companies in Finance, Insurance and Travel Industries. And because we have the ability to penetrate into other sectors, this isn't an exhaustive list.




Do you provide data science resources?


No, we are not a HR firm. We take projects and deliver solutions.




Do you work with start-ups?


Yes, we have a good experience in working with start-ups based out of FinTech, Insurance and TravelTech spaces. In fact, this is our USP.




How much do you charge for ML consulting?


Please get in touch with us at algo@arque.tech for an exact quotation.





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