Retail trading has been in the market for decades. However, the concept of trading has undergone a profound change. It is difficult for veteran investors to keep up with the new trends, like computers playing a major role in stock trading.
Any Algorithmic trading platform involve automated computer programs and software to ensure faster and more precise trading. It also accounts for around 75 percent of the entire global trading. Let us learn more about algo trading.
Benefits of Algorithmic Trading for Retail Traders
Systematic
Being systematic is key when it comes to trading. The market requires you to be analytical in observing and comparing the market elements such as price and time of any commodity. The successful traders are those who are methodical in following all the elements judiciously. Algorithmic trading helps in achieving a systematic approach. The various rudiments can be tracked automatically and studied, enabling the investors.
Discipline
Even with the availability of abundant market experts, retail traders are bound to commit mistakes. A growing market experiences a mammoth influx of trade. A downfall in the market has many investors withdrawing their money and suffering huge losses. It is quite natural for panic and anxiety in the investors because they invest according to their experience. With algorithmic trading, your trading decisions will be controlled and calculated.
Expedited Trading
Algorithmic trading enables the fastest means of trading. You can overcome the traditional form of trading, which is lethargic and time taking. In the investment business, time is money. Often, swift decisions are to be made to achieve profit. Algo trading facilitates prompt actions and helps your profit.
Versatility
The stock market is a colossal subject. Even with years of experience, investors are not able to grasp the nuances completely. Retail traders have limited scope for gaining knowledge about the market. You do have access to books, articles, and research papers on the subject with manual trading. However, there are various verticals involved in trading, and achieving mastery in all is quite difficult. Algo trading helps you widen the scope of investments.
Save Time
‘Change is the only constant of life’, holds for the investment market. The market is ever-changing and vulnerable. All investors need to have a constant vigil over the market. Algo trading can eliminate the time taking and tedious job. Thus, you can focus on other important things while the automated contemplation of the market is being taken care of by algorithmic trading.
Strategies for Algorithmic Trading
Trend Strategy
The market trends can be studied in depth by Algo trading. You can use various mathematical tools such as moving average and other technical indicators to determine the market trend.
Index Fund Rebalancing
The Index funds have defined rebalancing periods to bring their holdings at par with their respective benchmark indices. Algo traders can capitalize on expected trades, offering 20 to 80 basis points profits based on the number of stocks in the index prior to rebalancing. Timely execution and best prices are achieved by algo trading.
Mean Reversed Trading Range
This strategy is based on the concept that high and low prices of an asset are a temporary phenomenon that reverts to the mean value periodically. You can define a price range and implement an algorithm based on it. Thus, you can perform trades automatically when the price of an asset fluctuates from the defined range.
Volume-Weighted Average Price
The volume-weighted average price strategy breaks up a larger order and releases dynamically determined smaller chunks to the market. It uses stock-specific historical volume profiles. Thus, it executes the order close to the volume-weighted average price.
Time-Weighted Average Price
The time-weighted average price strategy breaks up a large order. It releases dynamically determined smaller chunks to the market with evenly divided time slots between a start and end. The objective is to execute the order closer to the average price between the start and end times. Thus, by this method, market impact is minimized.
Percentage of Volume
In this strategy, a predefined participation ratio is set according to the volume traded in the markets. The trade order continues until it is filled. The orders are placed at a user-defined percentage of market volumes. The orders vary the transaction when the stock price reaches user-defined levels.
Algorithmic Trading Platforms: The future of trading
The concept of trading has evolved leaps and bounds in the past few years. With access to mobile internet, trading apps, and various software, trading has changed its scope. The algorithmic trading platforms enrich a retail trader with numerous opportunities to excel in the market.
