What’s Algo Trading?
Algorithmic trading may also be described as “putting a buy or sell order of a fixed amount right into a quantitative adaptation that routinely generates the timing of orders and the scale of orders according to targets via the parameters and constraints of the algorithm”. Algo trading is a automated system to codify a trader’s execution strategy. Algo trading or pc-directed trading cuts down transaction prices and lets in fund managers to take keep an eye on of their very own trading tactics.
For automated trading system (ATS) training programme check Algo Trading.
Algorithms: Areas of Concern
1) Lack of Visibility
We know what a specific algorithm is supposed to do, measure its pre-trade analytics and see how the post-trade results match up to that expectation. But if the trader didn’t select the most optimal algorithm for that trade little can be done. This problem is caused by a lack of visibility and transparency into the algorithm while it is executing orders.
2) Algorithms Acting on Other Algorithms
If fund managers’ trading pattern is spotted and regular; tracked with the use of algorithms, then these algorithms are liable to be “reverse engineered”. This implies that their buy and sell orders are pre-empted and used to the maximum effect by their competitors. Here, algorithms are acting on other algorithms.
Which Algorithm to Use?
With brokers offering many algo trading strategies, one concern is that institutions lack the tools to understand which algorithm to use for a particular stock. The lack of a standard benchmark has made it almost impossible to assess the quality of algorithms. Firms are having a hard time evaluating when to use a particular algorithm. For example, if a portfolio manager tells a trader to sell a mid-cap, semi-illiquid stock within five hours—because the manager has to raise cash—the trader may be confused about which algorithm would be the best solution, given the constraints on liquidity and time. They need a certain level of sophistication and understanding to use it.
The above video shows a simple algo trading in Nest Trader using a plugin called Nest Pulse. Algo trading requires careful real-time performance monitoring as well as pre and post-trade analysis to ensure it is properly applied. Traders must calibrate the algorithms to suit portfolio strategy.
In India for small traders Omnesys India has developed a trading platform called Nest Trader where small traders can use a plugin called Nest Plus. Nest Plus has the abilibility to do algo trading either from strategies from Nest Plus or from strategies from Amibroker. We will write more on this in our future articles.
For a highly profitable strategy that can be immediately used in Amibroker for algorithmic trading you may see our Trend Blaster page.
For a 2 month’s comprehensive training on algorithmic trading visit Algo Trading page. Your comments below this post can take the discussion to further heights.