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Tomorrow's algorithmic trading technology will have better results and better risk management

Author: Ajaya Gupta
by Ajaya Gupta
Posted: Nov 03, 2019

Over the past few years, financial trading has witnessed a major change in terms of technological update. For traders, this is a major boost because these updates will help them in getting more power for fast execution of trades and reducing human errors. The computer-programmed software has helped traders to trade with comfort and without error. Of all the trading technology update, Algorithm trading software is the major one. Also called as Algo Trade, this software solution is designed for traders to manage funds easily. In the past few years, trading software developing companies are assisting traders to setup trading desk with zero errors.

According to one data, the global algorithmic trading size is around $11.1 billion in 2019 to become $18.8 billion by 2024. This further expands the CAGR of 11.1 percent. Algo trading is not new in the market, but entered in the mid-1980s. Presently, more than 70 percent of trading volume is conducted using Algo Trading software.

The age of Computer Trading-

We are living in the age of computers and trading is completely done using software programs. Big trader use computers running algo software, helping traders to execute in a more efficient way. Furthermore, the software allows traders to spot arbitrage opportunities between prices to execute trades.

How Algo Trading Works?

Algorithmic trading also called black-box trading used computer program following a defined set of algo instructions. The trade, in theory, can generate profits at a speed and frequency that is impossible for a human trader. These instructions are based on timing, price, quantity, or any mathematical model. Apart from profit opportunities for the trader, algo-trading renders markets more liquid and trading is more systematic.

Here is how Algo Trading is done-

  • Buy 50 shares of stock when its 50-day moving average goes above 200- day moving average. Here the moving average is an average of history data points that smooths out day-to-day price fluctuations and thereby identifies trends.

  • Sell shares of stocks when its just 50-day moving average goes below the 200-day moving average.

On using the above two simple instructions, the algo trade software will automatically monitor the stock price and place the buy/sell orders. Trader will not have to monitor live prices and graphs. The software does it automatically by identifying the trading opportunities.

Benefits of using Algorithm Trading-

A software developer designed algorithm-trading technology to offer multiple benefits. Some of the algorithmic trading benefits are-

  • Traders can trade at the best possible price.

  • The order placement is instant and accurate.

  • User can set the timing correctly and instantly to avoid price changes.

  • Saving transaction cost and slippages.

  • Reduction in risk of manual errors when placing trades.

Many of the Automated Trading software is high frequency trading attempting to capitalize on placing large orders at rapid speed.

Different forms of Algo-Trading-

Algo-Trading is used different forms of trading and investment activities-

  • It is used in mid in long-term investors or buy-side firms—pension funds, mutual funds, insurance companies. This is because companies do not want to influence stock prices with discrete and large-volume investments.

  • Short-term trades and sell-side participants used this software to benefit and create sufficient liquidity for sellers in the market.

  • Systematic traders find this software more efficient to program their trading rules and letting the software trade automatically.

Entry into Indian Market-

In India, Algo Trading arrived in the market after SEBI allowed exchange members to differ DMA (Direct Market Access). Top investors, mentors and companies with hedge funds with billions of dollars in AUM (Assets under Management) use Algo trade for managing the trading effectively.

Bottom Line-

Algorithm Trading is changing the method of online stock trading giving more opportunities to traders to trade without error. Professional trading software developer like Tvisi offer highly featured algo trading software. Such automated trading software is customized to work on different trading platforms like Interactive Brokers, Metatrader (MT4, MT5), FXCM, Tradestation, Multicharts, Ninjatrader, Takion, etc. Easy to install and trade, the algo trading software is certainly the best you can invest on.

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Author: Ajaya Gupta

Ajaya Gupta

Member since: Aug 23, 2016
Published articles: 10

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