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Faq Algo Trading - Myalgomate

Frequently Asked Questions

Frequently Asked Questions for any user who needs an information of Algo Trading software

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Algorithmic trading is the process of using computers programed to follow a defined set of instructions (an algorithm) for placing a trade in order to generate profits at a speed and frequency that is impossible for a human trader. The defined sets of rules are based on timing, price, quantity or any mathematical model. Apart from profit opportunities for the trader, algo-trading makes markets more liquid and makes trading more systematic by ruling out the impact of human emotions on trading activities.

In layman terms, algo trading completely eliminates the need for manual intervention. Once the rules of the logic have been coded into the algo, it will carry out end-to-end automation of trading ie. tracking the market for opportunity, placing the order, monitoring stop loss and risk, squaring off when required.

Algos can be used for trading on any exchange segment- equities, F&O, foreign exchange, commodities as well as cryptocurrency. Indian exchanges like NSE, BSE, MCX, NCDEX, FX, or crypto exchanges like BITMEX, BITFINEX, etc.

Consider the below example:

  • Buy 50 shares of a stock when its 50-day moving average goes above the 200-day moving average. (A moving average is an average of past data points that smooths out day-to-day price fluctuations and thereby identifies trends.)
  • Sell shares of the stock when its 50-day moving average goes below the 200-day moving average.

    Using this set of two simple instructions, it is easy to write a computer program that will automatically monitor the stock price (and the moving average indicators) and places the buy and sells orders when the defined conditions are met. The trader no longer needs to keep watch for live prices and graphs or manually put in the orders. The algorithmic trading system automatically does it for him, by correctly identifying the trading opportunity and executing the trading order.

  • When trading manually, a trader’s usual work flow will be as follows.

  • Looking at charts, quotes or news and trying to find a trade signal as per your strategy.
  • Filling in the order details when you DO find a trade signal (money time! Yay!)
  • Monitoring your trades to see if they reached your target or went in the opposite direction (as they often do)
  • Closing positions to either book profits or cut losses

    All these tasks need to be carried out immediately and accurately. Sometimes, even simultaneously. Moreso, if the trader would like to test/implement one more strategy, it is extremely difficult to manage both. In these cases, algorithms perform all the heavy lifting work of performing these tasks.

  • Faster & more accurate: Algo can track even a small change in prices & execute orders faster than humans can.
  • Processes large amounts of data: Suppose a trader needs to track 1 minute data for 10 stocks. Doing this manually has a very high risk of error. Using algorithms completely eliminates the risk. Algorithms can also be programmed to process multiple indicators for multiple assets without any loss of accuracy.
  • Eliminates human biases & sentiments: Algorithms will follow the instructions given, without allowing any bias or sentiment to influence trading decisions.
  • Allows for multitasking: Algorithms can constantly run & execute orders according to given instructions, without any manual intervention. This means that traders can be free to create more strategies, take breaks or spend time doing other things.

  • Algo systems work extremely fast. So if a position enters into a loss situation, the overall losses could be substantial. This risk can be minimized by appropriate risk management measures.
  • These systems are inflexible. They will operate in exactly the manner you instruct it to. So if the market dynamic has changed, the Algo would need to be updated as well.

  • Yes. It is legal in India.

    The regulation demands that the broker should take the approval on your behalf, you as a retail trader cannot go to the exchange and ask for approval.

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