Algorithmic trading
What it is?
Algorithmic trading is an automated system for placing and managing applications for trading in various financial instruments, using computer programs based on mathematical algorithms. Trading in the course of algo trading occurs without human participation. Algo trader or quantum trader only describes the algorithm of the robot (mechanical trading system (MTS)) behavior in various situations in the programming language.
Based on the analysis of the previous price range of financial instruments, they calculate the probability that the future price will fall into one or another range. A robot enters or leaves a transaction with certain changes in the price chart of a traded asset. A popular method of algorithmic trading is High Frequency Trading (HFT), that is, conducting electronic trading at a very high speed. High-frequency robots in order to make small profits open and close a large amount of short-term positions.
Algorithmic Trading Strategies
There are many algorithmic trading strategies that programmers put into a trading robot. The main ones are:
VWAP (Volume Weighted Average Price)
Volume-weighted average price. Distributes the volume of applications evenly over a certain time interval at the price of the best demand or supply, but not exceeding the average weighted price for a specified period.
Percentage of volume
Percentage of trading volume. Maintains a fixed percentage of participation in the market, which is selected by the user. Trades in frequent and small transactions, responding well to volume jumps.
TWAP (Time Weighted Average Price)
Time-weighted average price. Executes applications, evenly breaking them at equal intervals of time. The strategy does not take into account the forecasted change in trading volumes, which may adversely affect the market.
Iceberg
Iceberg. The submitted application for sale or purchase does not show the full size of the exchange application. Potential buyers see only part of the application, and only after its execution the next part is published. And so on until its full execution.
Arbitration
The exchange robot, fixing the discrepancy in prices for the same or equivalent instruments on different trading floors, buys cheap in one place and immediately sells more expensive in another, with the expectation that the price of instruments will converge and positions will close with a profit. Arbitration is considered an almost risk-free strategy, since the robot buys assets for a short time, avoiding sharp price fluctuations over time. The income from the arbitration transaction, respectively, is also insignificant, and the total yield is formed due to the frequency of transactions.
Trend following strategy
The objectives of the strategy are: early detection of an emerging trend through various indicators of technical analysis, issuing signals to trade in the direction of the trend and issuing signals to close the position when signs of the end of the trend appear.
Scalping
Short-term intraday speculative operations strategy. For scalping, high-frequency robots are most often used, which in a split second open and close positions when a small profit of a few pips is achieved. Basically, the strategy is applied in derivatives markets, where the commission on turnover is much lower.
Pair trading
Short-term intraday speculative operations strategy. For scalping, high-frequency robots are most often used, which in a split second open and close positions when a small profit of a few pips is achieved. Basically, the strategy is applied in derivatives markets, where the commission on turnover is much lower.
Investing in high risk groups: (Forex) and Price Difference Contracts (CFDs) is a speculative transaction that involves high risk and is not suitable for every investor. You can suffer both partial and total losses of invested funds, therefore we do not recommend investing capital that you cannot risk. You should be aware of the increased risk associated with the use of leverage. We strongly recommend that you familiarize yourself with the terms and services of our website before using our service.
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