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How To Choose The Best Algorithmic Trading Software?

Algorithmic Trading Software
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Whether you’re a beginner or a professional trader, picking the best-automated trading software is significant for you. Good software will help you in enhancing your portfolio and bring an invaluable return on investment. Before we dive into the details of good automated trading software, let’s first ponder upon its concept.

DID YOU KNOW? 

70-80% of trades are done through algorithmic trading.

Key Summary:

  • The key to success in trading is picking the right algo trading software.
  • An algorithmic trading software refers to a computer program, designed to facilitate trading.
  • Faulty software can cause huge losses.
  • Latency, cost, programming languages, strategies availability, complexity, and backtesting should be considered before choosing the best-automated trading software.

Definition – Algorithmic Trading Software

The algorithm is a common term used in Information and technology. It refers to a set of instructions needed to get a certain task done. Every computer program runs on an algorithm, whether it’s a simple game or algorithmic trading software. If you have never heard of Algorithmic trading platforms before, just keep reading.

Algorithmic trading software, also known as automated trading software, leverages computer programs with logical instructions to buy or sell trade. It follows pre-defined statistics-based strategies and eliminates human intrusion.

The program is designed to recognize beneficial opportunities and place a trade at a lightning speed and frequency. It’s fast execution and higher accuracy made it popular among traders, within a short period. Traders can easily define criteria in the system.

As soon as it matches current market conditions, the system starts placing trade orders.

Master Trading Psychology 

People usually neglect trading psychology. They consider a company’s evaluation and stock trend direction to be the only important factors in trading. However, neither of these skills are as important as trading psychology itself. Just like, to build a successful business, one must think strategically with a business mindset.

A trader must know how to control emotions and think rapidly to be successful in the trading business. These characteristics greatly affect an individual’s trading actions. Furthermore, be sure that after trade execution, your algorithmic trading software does not get in the way of your strategy. This is the most daunting task, especially when a person is experiencing a major drawdown.

At times, several strategies with a huge profitable back-test destroy overall balance with few interferences. Hence, examine yourself before moving forward with any kind of trading strategy.

Select The Right Trading Strategy

After mastering a trading mindset, one must identify one’s trading frequency. Many traders spend several hours on trading, while others can devote only a few hours weekly. Once you determine your working hours, selecting the best trading strategy is a child’s play.

The algorithmic strategy works best for full-time traders who can fill most of their day in trading. But, automated trading software has minimal effect on overall trading density. With that in mind, we recommend putting a lot of thought while picking the right trading strategy. The best-automated trading platform that offers reliable trading strategies.

Determine Your Budget

The minimal amount to begin trading is as low as $300. This is just the starting price. However, the amount may differ, depending upon your chosen trading strategy and algorithm. Also, for profitable trading, you need to leave a lot of money on the table to help in times of drawdown.

If your budget is low, let’s say it’s $10,000. You should adopt low-frequency strategies. In such a scenario, you shall trade one or two assets. Or else, transaction fees will eventually swallow all your profit.

Criteria For Picking Out The Best Automated Trading Software

Here is a detailed analysis of the most important factors to consider when choosing the best-automated trading software.

Market and Company Data

All automated trading software is programmed to act on real-time market data. Some programs also deliver additional customization, based on the company’s fundamental data. The best automated trading software will contain both of these functionalities.

Along with provision to integrate data from alternative sources. Moreover, a good automated trading software allows aggregating data from various exchanges and processing them as needed.

When using the software for multiple markets, always verify the data feed in a different format like FIX, IP, etc.

Low Latency

Latency refers to the time gap in moving a piece of information from one point to another. Today’s trading world is extremely dynamic. Many intermediaries are involved in the trading process. E.g. a price quote will take 0.2 seconds to reach your trading software, from an exchange. Then, it will take 0.3 seconds to get to your trading screen.

After that, it will require an additional 0.9 seconds for processing and placing the trade. You can imagine what will happen if the original price quote changes, in this period. Things can turn around in a blink of an eye. Therefore, latency is the most essential aspect of algorithm trading.

Algorithmic trading software with the lowest latency rate will ensure the most updated and precise information. You should prefer software which has a direct link with an exchange, and no vendors in between.

Configurability and Customization

The best algorithmic software like Digiebot comes with built-in trading algorithms. These algorithms are based on a crossover of the 50-day moving average(MA) with the 200-day MA. A trader has a choice to shift from 20-day MA to 100-day MA. If this customization is not available, a trader will be bound to the fixed moving average. Before picking an automated trading software, make sure that it offers higher customization and configuration rate.

Backtesting Feature on Historical Data:

Backtesting helps in testing an algorithmic strategy, based on its past or historical data. It acts as a practical example of a renowned saying- learn from past mistakes. This feature allows analyzing past information to identify if a strategy will be successful or not.

It also helps in identifying a sharp ratio to guide the risk management system. There are two types of backtesting: event-driven and research-based backtesting. It is a must-have feature but requires past data on a strategy to work.

Programming Language

The world of programming languages is ever-evolving. There are many programming languages available out there. Every language has its pros and cons. Although, Python, Java, Ruby are the most trending one. There is no hard and fast rule to examine which one is better.

But, choosing the right one for automating your trading strategy is vital. For more information on programming languages, check out this blog.

Excellent Graphical Interface

A great user interface provides a remarkable user experience. The best-automated trading software proposes great graphical representation that enhances data and their analysis.

For instance, let’s assume you wish to analyze a single currency pair. And, the system offers different options for different analysis like charts, trading success rate. Wouldn’t you derive a modest amount of joy from such trading software?

Cost

Trading fees can greatly affect your profits. If the commission is less, then algorithmic software automatically becomes the best one. Also, confirm that there are no hidden charges for trading. Moreover, nobody should pay monthly fees of any kind. You should only pay for the services you avail of through the trading software.

Total Number of Strategies Allowed

Some software puts limitations on the allowed number of strategies. A good automated trading software, not only allows you to boundlessly select from a list, but also offers to create a new one. The strategies also involve all types of trading methods.

Some require manual override, others are completely automated. A few platforms offer their own customized strategies as add-ons which can be purchased by paying periodically or one-time charges.

Support for All Operating Systems

You must always select a platform-independent software. This means that it can run on any kind of operating system. Some versions of C++ support only a single platform. Whereas, Perl supports all operating systems like Windows, Linux, etc. Remember to select a trading software that is built on platform-independent language. You never know, things might take a great turn in a few months.

Bottom Line

Don’t blindly trust a software, before conducting a deep analysis of its features and capabilities. As too much dependency will result in hefty losses. You need to know about trading as well. A reputable software and great understanding is a perfect mix to earn profits out of trading.

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