Is algo trading the way forward for you?
Updated: May 30
Algo trading or automated trading is a popular buzzword among traders in the stock market today. Conventionally, only institutional traders, asset managers or cryptocurrency traders have been using this form of advanced technology. But a boost in the number of start-ups offering various algo trading platforms has propelled its use among retail traders, brokers & sub-brokers.
Algo trading has helped to make trading faster & much more efficient. In fact, manual traders are slowly losing advantage because of intense competition from machine directed transactions.
Are you still wondering whether algo-trading is the future of all trading?
Here, we will bust some commonly perceived myths.
This is incorrect! Algo trading is legal. In fact, over 40% of the trades in Indian markets (especially in NSE F&O segment) are carried out through algos.
The easiest way to do algo-trading would be to get API from your broker at a minimal additional cost. Zerodha, Upstox, IIFL, Phillip Capital, Motilal Oswal, Sharekhan, etc. are brokers who provide API.
Algorithms, in the simplest terms, are codes which contain a set of instructions applied to some data to give a desired output. As long as the input data & instructions can be specified, an algorithm can be developed for ANY action required to be taken. Hence, they can be used for trading any kind of instrument, be it stocks, F&O, any other financial (or even non-financial) instruments like commodities, foreign exchange, cryptocurrency, etc.
Each of these signifies 3 different kinds of trading:
Algo trading is the process of converting a trading strategy into an algorithm or code and then allowing the algorithm to perform all trading related activities. It includes monitoring the indicators, generating trading signals, executing transactions, monitoring progress of the strategy, executing stop loss or squaring off at target price.
Quant trading is the method of using mathematics & statistics along with quantitative analysis to develop a trading strategy. After this, the strategy can either be traded manually or automatically.
High-frequency trading is a form of algo-trading done at extremely high speeds. It allows for large number of trades in a very short span of time. Usually, each of these trades have a very low profit target. The sheer volume of trades accounts for the incremental profits (or losses) made from HFT!
Again, NOT true! There are innumerable algo-trading platforms available for retail traders, brokers & sub-brokers. These are easy-to-understand-and-use softwares which offer a wide-range of functionalities. The popular ones are Streak by Zerodha, Presto by Symphony Fintech, GATS by Greeksoft. Even NEST by Omnesys offers some algo-trading features.
In case these functionalities are restrictive, there are firms (like Arque Tech!) which can build fully customized & efficient algo-trading systems to meet all the requirements.
In a nutshell, you do NOT need to know programming to do algo-trading!
If you haven’t already switched to algo-trading, you are probably losing the best trades to a smart algorithm running on someone else’s system! So, don’t lose your edge, switch to algos today!
For algo trading or backtesting your strategy, write to us at firstname.lastname@example.org
Check out some of our backtested results here!