Specificity of algorithmic trading
- May 16, 2013

Algorithmic trading is a method of transactions execution on Exchanges. It means usage of special robots that are much more mathematically accurate than even the most experienced trader. Sometimes such programs can provide profitability up to 1000%. You can create robot yourself or order it from a professional programmer.
Using such program trades can have enough volume profit even making deals on tiny prices differences.

Advantages of algotrading

There are some main advantages that are a provide good reason to use such method of trading. It is about software, technical abilities, analytic systems and different additional abilities.
When you talk about main positive sides of algotrading worth to notice next moments:

  • comfortable trading terminal;
  • modern interface;
  • direct connection to server;
  • safe protocol;
  • ability to trade on options.
  • In total, such a way of trading is very comfortable for managing your trading account. Just switching on command of auto trade you may not to watch after graphic. It does not demand any special knowledge because all process of analyze and decisions making program performs by itself.
    There is one more advantage of robotic trading systems. This would be usage, no psychological factor exists. All decisions based only on strict logics without any emotions. Traders fear and greed do not influence on common process.

    Disadvantages

    Despite such systems allowing manage trading process without users participation, there are some downfalls as the program does not react on market’s news. Algorithm cannot react on sudden events and change strategy.
    Sometimes it happens so that when serious data published automatic system keeps up working on predicted algorithm so much rapidly that cannot fix profit data. In result, it makes a line of unprofitable deals.
    That’s why it is recommended to watch the robots work and not to make process fully automatic.

    How it works?

    Algorithm receive an input event (search for quotations, market events) and a set of subscriptions. After analysis, it returns subscriptions which has overlaps with market events.
    Passage of application between client and broker is carried out by FIX protocol. Such message contains next parameters:

  • start and finish execution time;
  • target execution price;
  • execution’s aggressiveness or passiveness;
  • participation in auctions of trading sessions opening and closing.
  • Investor receives FIX messages about application’s status and a result in the end of the day.

    Trading algorithms

    Let’s consider some most popular exchange trades algorithms.
    VWAP. It spreads all applications, volume evenly during certain time interval. They are limited by price and cannot be higher than average price of mentioned period.
    TWAP. It executes applications evenly distributing them to equal time intervals. Strategy doesn’t mention predicted change of trading volume, which can has negative influence on market.

    Percentage of Volume. It supports fixed percentage of participation on chosen by user market. It trades with often and little deals; also it well reacts on volume jumps.
    Iceberg. It does not show a full size of exchange application. Potential buyers see only a part of application and next part appears only after its performance.
    Trend-tracking strategy. There are few main tasks of such strategy. First of all, it is detection of nascent thread using data from different indicators. Next is sending signals of trading start and position closing.

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