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What is Algo Trading

Algo trading harnesses advanced algorithms to execute trading strategies with unparalleled precision, catering to traders seeking to customise their approach for a tailored trading experience. This innovative trading form allows individuals to leverage broker-provided API keys, granting access to automated operations that transform complex strategies into seamless actions. Algo trading, gaining momentum for its ability to simplify trading through technology, enables even those without programming skills to participate effectively. Traders can back-test strategies confidently, ensuring their moves are both smart and strategic. As Algo trading becomes increasingly popular, it represents the future of trading, offering a platform where strategies are not just executed but optimised, marking a significant shift in how trading success is achieved and redefining opportunities in the financial markets.

Purpose of Algo Trading

The purpose of algo trading is to elevate trading efficiency and precision by leveraging advanced algorithms to automate and optimise trading strategies. This technology enables fast execution of orders, surpassing human capabilities and allowing for high-frequency trading at an unprecedented scale. It significantly reduces the risk of emotional decision-making and human errors, integrating sophisticated risk management tools for smarter, more strategic trades. Algo trading democratizes access to the financial markets by simplifying complex strategies, making it accessible even to those with minimal programming knowledge. Ultimately, it aims to reduce operational costs while providing the flexibility to adapt strategies in real-time, ensuring traders can maximize their market potential and investment returns efficiently.

Advantages of Algo Trading

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Fast Execution of Orders

Supercharge your trading! Algorithmic trading, driven by lightning-fast computers, slashes order execution time. Experience the pinnacle with high-frequency trading, enabling traders to make tens of thousands of trades per second.

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Automation

Unlock automated trading magic! Pre-programmed algorithms, crafted by skilled programmers, oversee operations seamlessly—from monitoring to trade execution, eliminating human intervention. Algo trading software development demands prior programming expertise for a robust system.

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Risk management

Level up from emotional decisions! Classic traders retain manual control, risking emotional choices and potential losses. Algo trading, your game-changer, seamlessly integrates risk management—entry/exit, stop-loss, fund rebalancing—for strategic precision.

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Human Error

Most human errors! Algo trading eradicates mistakes like wrong inputs, forgotten stop-loss, and emotional decisions. With systematic precision, it ensures flawless execution, freeing you from pitfalls and enhancing overall performance.

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Cost reduction

Invest wisely! While the initial setup of algo trading may be costly, its long-term efficiency slashes operational expenses. Execute large volumes swiftly, minimising transaction costs and ensuring a cost-effective trading journey.

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Free Algo Trading Software

Code your success! Algorithms, crafted by programmers, need timely updates to align with market shifts. In the unpredictable market, even the best strategy can falter. Enjoy the freedom to modify and thrive!

Pre-Built Trading Strategies

Take your trading prowess to the next level effortlessly with our Pre-Built Trading Strategies—meticulously crafted and ready to deploy, offering a shortcut to success in the dynamic world of financial markets.

Calendar Spreads

4 Min read  |  25 Feb 2024

Explore calendar spreads in Algo trading! This strategy involves holding long and short positions in two options with different expiration dates but the same underlying asset. Benefit from time decay, where options lose value nearing expiration. Risks are confined to the net premium paid, ensuring limited loss. Enjoy flexibility—adjust or exit spreads before expiration to adapt to market shifts.

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Order Slicer Strategy

4 Min read  |  25 Feb 2024

Master market impact with order slicing! This strategy involves breaking a large order into smaller, manageable parts, executed gradually to reduce the risk of adverse price movements. Pros include minimising market impact, adaptability to varying conditions, and efficient execution for institutional traders. However, cons involve added complexity, requiring close monitoring of market conditions and timing.

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Call Executor Strategy

4 Min read  |  25 Feb 2024

Harness the power of automation with Call Executor—an Excel-based algorithmic strategy offering real-time data utilisation. Accessible and affordable, it empowers traders with rule-based, automated executions. Capitalise on Excel's data connection capabilities for up-to-date insights on stock prices, volumes, and economic indicators, informing strategic decisions. However, be mindful of Excel's limitations, particularly in high-frequency or extensive market data scenarios.

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Scalping Trading Strategy

4 Min read  |  25 Feb 2024

Scalping, a day trading strategy, involves quick buying and selling of a single stock to make small profits across numerous deals in a short period. Scalpers prioritise technical trading over fundamental analysis, focusing on historical price patterns and current trends. Using ultra-short timeframes, as brief as five seconds, scalpers make 10 to 100 trades daily. Scalping stands out for its emphasis on rapid, technical trading techniques, distinct from other methods like position trading.

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Multi-Leg Strategy

4 Min read  |  25 Feb 2024

Optimise your options trading with multi-leg orders—simultaneous trades involving different strike costs, expiration dates, or asset price preferences. These orders, like spreads and butterflies, aim to trade amid volatility. Pros include potential loss limitation through strategic planning.

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Trend Trader

4 Min read  |  25 Feb 2024

Embrace trend trading for strategic gains! This popular strategy involves identifying and capitalising on sustained market trends, be it bullish or bearish. Traders align with the trend, buying long positions in an upward trend and selling short positions in a downward trend. Trend traders adopt a long-term perspective, utilizing technical indicators like moving averages for informed decisions.

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Candle trading strategy

4 Min read  |  25 Feb 2024

Unlock the power of candlestick patterns in quantitative trading! These simple formations offer easy interpretation, making them valuable for traders. With a basic understanding of candlestick formation, quantitative strategies leverage open, high, low, and close price fluctuations in various tradable instruments. The master candlestick strategy, a breakout technique, identifies new price ranges, anticipating significant fluctuations post-breakout.

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What We Offer

  • Virtual Trading
  • Execution Algo
  • Backtesting
  • Multiple Segment
  • Strategy Builder
  • Prebuild Trading Strategies

How Algo Trading Works?

Algo Trading completely works on the conditions and parameters designed and coded by the user. It is a process of executing orders utilising automated and preprogramed trading instructions to account for variables such as price, timing and volume.

Let’s understand it with an example: Suppose a trader wants to deploy an option selling strategy; firstly, he will design the strategy after writing down all the possible conditions of the strategy; later, it will be fed to the program for the best possible result. Let's say straddle but with some adjustments by us – one of the most popular option selling strategies, the possible conditions that could be fed to the program for the best possible result.

  • Sell 10 lots of Call and Put of ATM premium of NIFTY50 index on expiry at 9:30 AM.
  • Stop loss will be placed on the 50% increase in the premium value or at the break-even points.
  • Stop loss can be trailed on every 25% - 30% Deacy in premium value.
  • Target will be booked as soon as the premium value is not more than 10% of the selling value of the premium.

These instructions will be coded into one of the following languages: Python, Java, C++, R. Python. Using these given instructions, a computer program will automatically monitor the spot as well as the premium price and place the buy and sell orders when the defined conditions are met. The trader no longer needs to monitor live prices and graphs or put in the orders manually. The algorithmic trading system does this automatically by correctly identifying the trading opportunity. The core mechanism of algo trading is nothing, but the program will do trading on your behalf.

Technical Requirements for
Algorithmic Trading

Algo trading is completely based on a program, which means, obviously, there is a technical portion in the setup of the environment. Implementing the algo using a computer program is the last component of algorithmic trading, accompanied by backtesting (testing out the algorithmic strategy on historical periods of past stock-market performance to check the performance to determine whether the strategy is profitable or not). The challenge is to transform the created strategy into an integrated program that has access to a broker side for punching the orders. The following are some prerequisites for algorithmic trading:

Computer Skills

Computer-programming knowledge is necessary to self-build an algo strategy program, hire a programmer who can code your strategy and deploy it on the server, or use pre-made trading software.

Internet Connection

It is necessary to have internet connectivity and access to trading platforms to place orders. Keep in mind the server connectivity from the cloud and broker should also be fine for smooth transactions.

Access to Market Data & API

The programmer should have API keys and proper access to market data, which must be monitored by the algorithm for continuous looking for opportunities to place orders.

Ability to Test

The ability and infrastructure to backtest the algo system once it is built before it goes live on real markets. It is necessary to backtest the strategy and see the RR, POP and other factors before making its algorithm.

Historical Data

An algo creator should have past data to run and test the available historical data, depending on the various market conditions and complexity of rules implemented in the algorithm.

High Execution Process

Utilize distributed databases and parallel processing techniques to store and analyze large volumes of market data efficiently. Cloud servers would be best choice for fast execution of orders.

Algo Trading Time Scales

Algo trading is implemented across several time scales based on an individual’s investment needs. The time scale is just a factor of an individual’s choice and the type of trader; it can be changed accordingly from person to person. The factors that could affect the decision are events, market conditions, market segments, and many other factors.

Let us discuss the different time scales mentioned in algorithmic trading:

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Low-Latency Trading

Slow execution can lead to missed opportunities, and traders struggling with latency may be losing money.

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High-Frequency Trading

High-frequency trading (HFT) is algorithmic trading implemented by relatively high-speed execution.

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Intraday

Many intraday traders place orders between seconds and minutes through algorithmic trading.

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Swing Trading

Swing traders take advantage of the market’s short- to medium-term price movements.

Algo Trading in India and its legality

The SEBI (Securities and Exchange Board of India) approved the Algo trading in India in 2008. In the beginning, only institutional investors, such as mutual funds and insurance companies, were allowed to do it, but now, even retail investors are allowed to deploy their strategy completely onto Algo software. Lots of broker and fintech companies offer a way to do Algo trading through an Application Programming Interface (API). Users can either create their own trading strategy based on their conditions or pick one that's already set up by the Algo platform providers like Bigul. According to the 2018 report from NIFM, 50% of all clients' trades are done through Algo software, and about 40% of proprietary trades use it, too. In more developed markets, ego trading makes up about 80% of all trades.

Conclusion

For a classic manual trader, shifting to algo trading will be an amazing experience. Algo trading, in a nutshell, is a concept where a trader deploys its strategies and concepts into a program where the overall operations, from monitoring to managing orders, are completely managed and operated by algorithmic software specially designed to perform certain tasks. It is not necessary for algo traders to give 100% of their control to their program; it can be customisable according to the needs and necessities of the trader. It is a mathematical model developed by programmers and is fed into a computer in a certain way so that they can perform well in their trades without causing any human errors such as delay in execution, human errors, bid-ask deviation entries, etc. As the broker provides the API key to their clients for accessing and enabling the algo trades, basically, it is a complex process to make the overall environment of algo trading setup, which requires professional knowledge in finance and programming to make your strategy fed into a computer for smooth running without any unwanted or unbearable risk into the orders and for any individual but you can make and backtest your strategy without programming knowledge.

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FAQs

Discover all you need to know effortlessly with our frequently asked questions—your go-to resource for answers.

Algorithmic trading is a concept of self-placing orders via specially designed and coded software for executing trades on certain pre-designed conditions. It is a process of executing orders utilising automated and preprogrammed trading instructions to account for variables such as price, timing and volume. An algorithm is a set of directions for solving a problem. It is nothing but a mathematical model developed by programmers and is fed into a computer in a certain way. The Algorithms are generally designed by programmers based on their own psychology and way of trading into codes so that the deviations (delay in execution, human errors, bid-ask deviation entries, etc) which occur in between execution of orders would be suspended.

A software program that analyses market data on a real-time basis and executes buying and selling orders based upon given conditions. It is basically a mathematical model developed by programmers and is fed into a computer with conditions. As per the given rules and conditions fed into the program, if the market satisfies all the conditions, the program executes buying and selling orders with proper monitoring of the market on a real-time basis. All these tasks are performed by APIs provided by the broker's end.

Adapting an algo trading style brings various benefits into the trading approach, such as increased speed and accuracy in executing orders, reduced human errors such as wrong quantity or entered price, improved efficiency of order execution and placement, analysing large amounts of data, quick decision making based on market fluctuations, having no fear or greed like emotions as human generally doesn't cut down losses quickly.

Algo trading is a hard-coded program built for traders' ease, so it is easy for computers to work faster, quicker, and emotionless than humans. It includes real-time market data monitoring, advanced charting analysis and technical analysis tools, the ability to accurately backtest strategies, and a user-friendly interface for creating and executing trades. Some platforms may also offer prebuilt algorithms, automation capabilities, and the ability to integrate with other financial tools and services.

Yes, Bigul's Algo Trading platform offers customisation of your trading strategies according to your own trading style. You can design, create, and backtest your strategies here with us and execute them with our advanced algorithmic engine. It includes the ability to set your own rules, parameters and conditions for trade execution. It also allows you to create a strategy tailored to your individual needs and goals.

Yes, our algo trading platforms are designed specifically for high-frequency trading strategies, which require extremely fast order execution and low latency.

There are no charges for using Bigul's algo trading platform.

Yes, Bigul allows the ability to backtest your strategies, which allows you to see how your strategy would have performed in historic market conditions and improvement measures if there are any deviations in the strategies that occurred. This can be a useful approach for refining and improving your strategy before using it in live markets.

There are no charges for backtesting, as Bigul offers its Algo Trading platform free of cost for its users.

Yes, Bigul's Algo Trading platform offers automation capabilities, allowing you to automate your trading strategies and have it execute your trades automatically based on your defined rules, parameters and conditions. This can help to eliminate the need for manual intervention and adjustments into trades and can help to ensure consistency and discipline in your trading approach with no to fewer human errors.

Yes, it is possible to use multiple algo trading platforms simultaneously to execute different trading strategies or to take advantage of different platform features.

Algo trading is mainly used by institutional investors and large brokers to cut down their trading costs. But it is also accessible to retail clients; it can be a powerful tool for experienced traders, whereas retail clients with less experience can also use it for sustainable trading. Bigul also offers educational resources and a user-friendly interface to help its users get started and become more confident in their trading strategies.

Algorithmic trading is no doubt faster than manual trading because the placing of buy-sell orders is automatic and computer-driven. Algo trading's core concept is that it reduces the overall time taken for order execution because computers can place orders at far higher speeds than human operators sitting at trading terminals. Algo trading offers High-frequency trading, which allows a trader to make tens of thousands of trades per second.

Algo trading is considered absolutely legal in India, as per SEBI regulations.

Bigul offers zero-cost algo trading on its platform.

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