Algo Trading or Black Box Trading – Platforms, Features, Strategies, Usage & more

Algo Trading or Black Box Trading is quite new in the Indian Stock Market Sector & very few brokers are providing algo trading platforms to their clients in India. In this article, we will discuss in detail about Algo Trading, Algo Trading Platforms, Features of Algo Trading, Usage & more.


What is Algo trading?

Algorithm trading or black box trading is a system of trading that uses advanced mathematical tools to facilitate and predict transaction decisions in the financial trading markets.

Algo Trading PlatfromsIn this sort of trading system, the decision-making timings are very quick as the need for human intervention is eliminated. This system enables the user to take advantage of any profit-making opportunities that could possibly arise in the market before a human trader can even identify them. It is a great way to predict the near future if the financial markets.

There are many huge institutional investors who deal in a large number of stocks and shares. These traders make good use of algorithmic trading. The concept is highly technology driven and has just started to become popular over the last few years. There are a lot of black box trading platforms that suit the needs of various investors to help the user make a profit.


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List of all Algo Trading Platforms or Applications

There are various algo trading platforms out there that you can take a look at before you start investing your money. Some of them are:

Omnesys NEST

This platform is a premier algorithmic trading space. Omnesys is capable of implementing various strategies like order slicing, basket trading and 2l and 3l spreading. This platform is quite versatile in its way of working as it motivates traders and brokers to trade across many commodities like derivatives, forex, and equities

Presto ATS

This platform is developed by Symphony fintech and is it one of the most popular and versatile when it comes to algorithmic trading. It is considered one of the best for automated trading in India and suits all asset classes.

ODIN

ODIN is developed by Financial Technologies which is portrayed as a multi-segment, multi-exchange trading and risk management platform. It features risk management, order management and also third-party API integration

FLEXTRADE

This platform is a global leader and an industry pioneer in the field of execution and order management systems, options, broker-neutral, forex, and fixed income securities

AlgoNomics

Developed by NSEIT, Algonomics is a black box trading platform which has been created to provide comprehensive monitoring with low latency execution and a control mechanism

MetaTrader

This is a multi-asset platform that provides excellent trading opportunities and technical analytic tools and it also enables the use of trading robots and copies trading. It acts as an all-in-one platform for trading anything from forex to derivatives


Features of Algo Trading or Black Box Trading Platforms 

Algo trading is a great platform to play your trading game on if you understand all its features correctly.

The features of black box trading are:

  • Broker and Market Data Adapters – You have access to a wide range of market and broker data available which can be accessed with ease.
  • Markets and Instruments – There are many algo trading software out there that support multiple instruments and markets to facilitate a wide range of trading strategies.
  • Order Management and Execution Algos – Algo trading platforms offer flexible order management so you would be able to execute any trade in any market. You have a wide range of order types and algorithms available.
  • Strategy Development – With algo trading, you will find a number of useful features to help you create and test any quantitative trading strategies in any market like commodities, shares, forex, futures, cryptocurrencies, and bonds.
  • Business Functions and Automation – Algo trading is highly technical and fully automated so it helps you cut down on an hour of manual human labor. It saves valuable time and keeps your business streamlines.
  • User Interface and Reports-You will find several custom management and reporting features in algo trading to suit your trading operations
  • High Availability and Performance – Algo trading is an extremely robust and reliable system as it is built on a memory efficient, multi-threaded and a highly concurrent architecture. That results in high performance and availability

How to use Algo Trading? or Strategies used in Algo Trading

Below mentioned strategies of Algo Trading can provide great success in Stock Market Investment. Please go through all the strategies carefully.

Focus on core areas of Algo Trading

  • Quantitative Analysis – quantitative analysis is very important when it comes to algo trading. You need to work on statistical packages and time-series to master algo trading. You would be required to explore historical data and design trading strategies. These skills are highly valued by recruiters in many trading firms.
  • Trading Knowledge – A professional trader is expected to have a good basic knowledge of many financial markets such as stocks, currencies. The knowledge will be important when you interact with quants
  • Programming Skills – The strategies that are developed by the quants are by programmers in live financial markets. If you want to master in the technology domain of automated trading, you should be willing to learn new programming skills like C++, Java. Practice makes you perfect.

Become an Algo Trading Professional

  • Getting started with books – There are many algorithmic trading books that are great resources to fully learn algo trading. For example- to brush up your skills on derivatives, you can look up books like “options, futures and derivatives” by John C Hull.
  • Free Resources – If you are a beginner, you can follow many free blogs that are available online on algorithmic trading. You can attend online webinars and catch trading podcasts and also look up online portals. You can also register for free courses that are available like Coursera and Open Intro
  • Learn from Professionals – The building blocks in algo trading are stats, R Matlab, derivatives. It is necessary to learn from the experiences of professionals and current market practitioners. You can join an organization or workshops to familiarize yourself with the trading ethics and best practices for markets.

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Implement Theoretical Skills on the Platform

If you get placed in an algo trading firm, you are expected to apply and implement your theoretical knowledge into practice. As a new recruit, you will be expected to have knowledge of all the other processes that are involved in the workflow chain.

As a new recruit, you will be working on specific projects that you will need specific training on risk management and programming. It is essential for new and wannabe quant developers.


Does Algo Trading work for Beginners?

According to the perspective of beginners, algo trading is considered to be a complex area that cannot be grasped easily. It is true to a certain extent because algo trading covers a wide range of areas such as statistical and mathematical maturity.

However, the overall concept is pretty easy and straightforward to understand if they are looked at properly. The details are the ones that need to be focused on and learned in an iterative manner.

The best thing about algo trading is that there is no need for a trader to test out his knowledge on real capital as there are many market simulators that you can use to improve your skills.

There may be a lot of caveats associated with such simulators but it surely provides the right environment for a budding trader who has just started out.


Does Algo Trading work for Intraday Traders?

Short-term traders or intraday traders and sell-side participants also benefit from algo trading and automated trade execution as there are many algo trading aids out there for them that will create sufficient liquidity for sellers out there in the marker.

Speculators, brokerage houses and arbitrageurs also use this form of trading to brush up on their strategies


Does Algo trading work for Long-Term Investors?

Algo-trading is something that is mainly used by mid to long-term investors. They invest in areas like pension funds, insurance, and mutual funds and use the money to purchase equity in large amounts as they make sure not to influence stock prices with large volume and discrete investments.


Advantages of Algo Trading Applications or Black Box Trading

Various advantages of Black Box Trading or Algo Trading are mentioned below:

Minimize Emotions

When it comes to automated trading systems, it eliminates human emotions throughout the whole trading process. And by keeping emotions in check, traders usually don’t let it cloud their judgment and stick to the plan. Once trade rules are met, trade orders are met automatically executed.

They cannot hesitate and question the trade later. Automated trading can curb under or over trading and still give you an opportunity for profit at every stage

Ability to Backtest

Backtesting is a trading rule that applies to historical market data when you are studying the viability of an idea. When a system is designed for automated trading, all the rules need to be absolute and clear, leaving no room for any different interpretation- as the computer cannot make guesses or assumptions.

Precise backtesting allows the traders to fine-tune and analyze trading and determine the capacity of a certain system’s expectancy.

Preserve Discipline

As trade rules are already established and the implementation is performed automatically, trade discipline is preserved even in highly volatile markets. Sometimes, discipline is often lost due to the presence of emotional aspects such as a fear of risk or loss.

Automated trading ensures that this does not happen and the trading plan is maintained perfectly. Additionally, pilot error is significantly minimized so there will not be any incorrect order placed while trading.

Achieve Consistency

Consistency is one of the biggest challenges when it comes to planning the trade and trading the plan. If a trading plan has the potential to become profitable, traders who ignore the rules and alter the system would create a shake in the platform.

Trading is a field where you can either win or lose. You cannot go in expecting profits all the time because it does not work that way. You must be ready for losses as well.

Even though some losses can be psychologically traumatizing, you need to move and skip to the next trade. An automated system lets the traders have consistency when it comes to trading the plan.

Improved Order Entry Speed

The trading market is incredibly dynamic and computers are still not yet equipped with crisis situations. Just a few seconds in an out can make a huge difference in a trade’s outcome.

All the orders are automatically generated once a position is entered. This helps in clean order placement to protect losses and profits. An automated trading system prevents a trade reaching a profit target and then blowing past the level of stop loss.


Disadvantages of Black Box Trading or Algo Trading

Automated trading has its own disadvantages as well:

Above Average Expenses

Automated trade execution usually requires a slightly larger capital, to begin with. To open an account that does not still offer such a service, brokers need more money.

This is why more brokers are adopting the FIX protocol which is a standard way to execute transactions and trades directly with the changes in the market.

Mechanical Failures

Any technical glitch can cause disaster for traders. Which means, it is surely susceptible to all the malware and is not infallible. Depending on the kind of trading platform, the trader order that you place could be on a computer and not on a server.

So, if the internet connection is lost, your trade order might be held up and not be sent to the market right away. When trading on automated platforms, traders should expect a learning curve as it is generally a good idea to begin with a small trade size and refine your process slowly

Monitoring

Even though the automated system can carry out their own activities without human effort, they are still man-made machines and require some monitoring.

You cannot just turn on a trading computer and leave it on for the entire day to carry out its operations, you need to look out for issues such as connectivity, mechanical failures and computer crashes as these factors can cause a delay in your trade order.

As a result, you could end up having a missing, errant or a duplicate order. Constant monitoring can help resolve these situations quickly

Over-Optimization

Traders who constantly employ back-testing systems can perform great on paper and bad in the actual trading market. Over optimization means the excessive use of curve fitting to produce a trading plan that can prove to be unreliable in the live trading platform.

Sometimes, traders assume that a trading plan must have a close to 100% of profitable trades, which is incorrect. They adjust this parameter to create a perfect trading plan but this means that they will fail in the live market where the profit margin they are expecting is not possible.


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