The computerized order flow was introduced in the year 1970 but executed in India in 2009. Algorithmic or Algo Trading often refers to Automated Trading System. The name itself carries the meaning of the system. Previously, I have written a content based on Automated Trading System, you can check the write-up for basic information purpose. Today along with the definition of AT, there are steps to start Automated Trading in NSE or MCX.
Algo Trading FAQ
In algo trading, computers execute orders automatically by following traders’ instructions. The popularity of this system becomes so high that the world’s trading one-third percent comes from this kind of hands-free trading.
As per the data of 2013, one-third of the total world’s trades were being carried out in an algorithmic way. That is a huge number and this percentage is going day by day.
Before steps into the function of Algo Trading, you need to understand Algorithm first. An Algorithm refers to a series of data that a computer follows to calculate specific things. Sometimes, manual speeds and frequency are not enough, the automated trading system was introduced for this reason. Hence, traders instruct the computer by providing certain specific codes or algorithms. After getting pre-programmed instructions, computers execute orders through Algo Trading.
In India, fully automated trading is still not allowed for retail traders. Rather they have a way to automate their trades using a semi-automated way. Retail traders can start algorithmic trades, but there will be a pop-up confirmation window every time their orders will be fired into the system. Hence it is a semi-automated process. This process is 100% legal in India. However, dealers can do fully automated trading, but they also need to approve their strategy from the exchange.
Algo Trading Strategies
So, there are numbers of strategies of Automated Trading System as stated below:
- Arbitrage Opportunities
- Mathematical Model Based Strategies
- Volume Weighted Average Price (VWAP)
- Percentage of Volume (POV)
- Sideways Market Strategy
- Trend-following Strategies
- Index Fund Rebalancing
- Trading Range (Mean Reversion)
- Time Weighted Average Price (TWAP)
- Implementation Shortfall
How to Do Automated Trading In NSE Or MCX?
Using Amibroker and Pi Bridge on Zerodha Pi
The AmiBroker charting platform is easy to way for charting and analyzing. Writing trading logic is also quite easy on the AmiBroker. AmiBroker can also be connected to the broker’s terminals like Zerodha Pi or Upstox Pro.
Algo Trading through Pi Bridge
Codes can directly be written on the Zerodha Pi platform and this is a simple way for automating your trading process without using third party software like AmiBroker or any datafeed software. The drawback of this system is only simple strategies can be coded on the Zeerodha Pi.
Using Amibroker and Kite Connect to trade on Zereodha Kite
Nowadays, you can also connect Zerodha Kite of Zerodha with AmiBroker. Here as an intermediary between the two software you can use Kite Connect API. But this method is costlier as Zerodha charges Rs. 200 per month for this connection.
Using Excel with Pi Bridge or Kite Connect to trade on Zerodha Pi or Zerodha Kite
Just like the AmiBroker platform, Microsoft Excel can also be connected to Zerodha Pi or Zerodha Kite using respective bridges. You can write codes directly on the Excel for algo trading. The live data can be extracted from theZerodha Kite or Pi and they can be connected to excel.
Using Python with Bridge or Kite Connect
Algorithmic codes can be written on Python also and that can be connected to Zerodha Pi or Kite. This method is getting popular nowadays between traders.
Using Zerodha Streak
Besides these above process, there is another option Zerodha streak by which you can trade without any coding language. Zerodha launched this system to promote an easier Automated trading system. On the front page of Zerodha streak, traders can find a video link. Traders can get a basic guidance regarding this particular trading.
Algo Trading Using Omnesys Nest Trader
There is a classic way to do Algo, which is using Omnesys Nest Trader. A basic guide video is attached below on Nest trading. The process is Nest Trader + Nest Pulse or Nest Trader + Amibroker + Nest Plus. The trading platform performs Algo from Nest Plus or from Amibroker.
Algo trading using the Nest Trader is a less costly method as the broker’s charge for this method is quite less. I am providing a simple video guide below. Remember, this video is an old video, taken in 2013. But this method is the most ancient method of automated trading and the video is still relevant even in 2019.
Points to Remember
- If traders want to play safe, they can apply Algo strategies on a bulk of securities, known as Basket.
- After adding baskets, run the backtest option to test the strategies.
- In order to get a secure and strong server option, connect VPS (Virtual Private Server).
- Though it is a computerized trading system, manual checking is quite important after a certain time span.
If you want to know more about this trading system, you can check out the following book: Trading the Measured Move: A Path to Trading Success in a World of Algos and High Frequency Trading (Wiley Trading)
Besides this, there is a PDF of SEBI (Securities and Exchange Board of India) on Algorithmic Trading and Co-location.