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ALGORITHMIC TRADING SYSTEMS

Algorithmic Forex trading systems are designed to make buy and sell orders on their own with no intervention and many see them as the future of Forex trading there fast, work on their own and are disciplined in there application of the rules and many see algorithm trading as the future, in terms of trading currencies for profit. These mechanical trading programs are popular with institutions and with the growth of retail Forex, many traders want to use them and make money in their spare time. Lets take a look at Forex algorithmic trading in more detail.

Algorithmic Trading Systems Definition


An algorithmic trading system is simply one which uses mathematical models or equations to generate buy and sell signals with no human intervention. The use of algorithmic trading is most commonly used by large institutions, banks and brokerages, to transact large amount of the financial instrument traded be it currencies, stocks or futures. In recent years, there has been an emphasis placed on the speed advantage these algorithmic trading systems to gain an edge in the market, with many of these automated trading programs being able to transact orders in a split second which is far quicker than a human can act. Most of these systems work on being in and out of the market within a day (although some trade longer term) and the emphasis is on trading high volumes and using the speed advantage, to get small but large profits with low risk. Algorithmic trading can be based on a variety of different strategies. Some work on looking for arbitrage opportunities where the algorithm will look for market inefficiency in terms of spread opportunities between different markets. Another common strategy is transaction based on reducing transactional costs, where the software analyses the market and then breaks down one large transaction into smaller ones. This is to get all orders executed at the best price and finally, there are ones simply trying to gain an advantage of speed to get in out the market and scalp a quick profit. Not all algorithmic trading strategies are complex, some can in fact be quite simple and there are some that trade long term. These traditional computer programs are not put into the algorithmic definition of trading by many, because they don't see them as advanced trading strategies but by definition, they are algorithm based systems. Any system that relies on a computer and uses a a mathematical model ( albeit a simple one) to execute trading signals is algorithmic by nature and its these trading systems which actually work better than more advanced systems. .

Advantages and Disadvantages for Traders


When the public thinks of algorithmic trading it conjures up a world of sophisticated computer technology which can beat the market and they think that because someone claims a system is based on a neural network or artificial intelligence it can give them an edge and of course there are a vast amount of vendors selling this technology in the form of Forex robots. These automated trading software programs are not as advanced as the vendor claims and don't even use the technology claimed its all marketing hype. These systems sell in huge numbers to nave and greedy traders, who think this technology will give them an edge. If you are thinking of trading with an automatic buy and sell program then consider the following facts:

Facts You Need to Know


95% of all traders lose at Forex trading and always have and technology and the application of it has never changed this ratio which proves that simple systems can beat complex ones. Mathematical models cannot beat the market because markets don't move to any set pattern, so making a system to complex is actually a disadvantage - because it will have top many elements to break. Simple systems work best in odds based markets and always will. Most of the trading systems sold in online currency trading, are look to scalp or day trade and the problem with this is - the the shorter the time frame, the harder it is to make money. This is because market movements tend to be less accurate in shorter time frames and it's the highest risk form of trading you can do.

Final Words
Algorithm trading is nothing new, people have been using mechanical systems for years but in recent years there has been a rise in

the number of retail robots which use this name and claim to be able to predict the market but end up losing money. If you want to make money in Forex trading by all means use an automated trading system but make sure it's simple, trades long term trends and you understand the logic its based upon, so you can trade it with confidence and discipline.

What are the major disadvantages of algo trading? ----- Look most people think Algo trading will make them money and if it does not, the whole concept should be scrapped. But Algo trading is just the Automation of your strategies. If your strategy is not working, you cannot blame Algo trading for it. Its like you are blaming the application for not running on the computer but you have not noticed that OS used is not performing well. Algo trading has all the benefits that other processes being automated brings in, and may be more. ---- It slightly depends what you mean by algo trading. If you mean high frequency and the like then some people would argue that algos skew the market. Those who can afford the people and machines to run HF strategies win at the expense of 'ordinary' investors. One could also argue that trends in algo-wars, where algos try to determine the trades of other entities in order to capitalise on them is leading to an arms race in which - again - those with the most resources win at the expense of others (conversely one could argue that winning at the expense of others is what happens in markets, so tough). In case you don't already read it, the blog 'Zero Hedge' tends to take this kind of view of algos. Alternatively if you are talking about algo-trading then it seems to me that the answer is one of personality. Some people may not be able to trade a fully automated system and might start over riding it (which will probably lead to poor trades). In order to trust an algo you probably have to understand it very well and you also have to be comfortable with somewhat passive statistical trading (but more intensive research and testing). ---- I think the advantages of algo trading far outweigh the disadvantages. But, some of the drawbacks are: 1) 98% of algos have a short lifespan. They work until they don't and then you have to invest more time fixing them or creating the next one. It is a continuous process of monitoring, improvement and re-inventing. 2) users of algos can become complacent, sitting back and letting the 'computer' do the trading. That can lead to big losses, like the big algo trade that helped cause the flash crash in May 2010; 3) it takes a broad range of capabilities to create an algo trading operation, e.g. significant trading experience, knowledge of market data and micro-structure, ability to set up the necessary computer hardware, software and network, strategy conception and definition, programming skills, risk management, business management and of course capital. If you don't possess all these yourself, you have to pay third parties to supply the missing pieces. ----- Thank you all I have been enlightened please keep me informed about all the developments in this area

Advantages Of Automated Forex Trading


One of the greatest advantages of Automated Forex Trading is the possibility to perform complex calculations, as well as analysis of large volumes of historical data, quickly and easily, if there is such a need. In addition, Automated Forex Trading saves great amounts of time, and allows trading around the clock, without the need for trader to sit in front of the computer to analyse the charts. Advantages of Automated Forex Trading includes:

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Opening and closing of orders are done automatically. No need to be present at the computer. Capture trading opportunities 24 hours a day to maximise profits. Possibility to optimise system to perform at optimum performance at certain market conditions. Possibility to set up closure of orders at a certain time. Remove the emotion and guesswork as emotions are normally traders greatest enemy. Strictly follows a predefined set of rules. Can be programmed to trade a certain number of lot size based on pre-defined money management rules.

Disadvantages of Automated Forex Trading


Despite Automated Forex Trading provides a trader with a wider range of opportunities, and more free time for the trader to engage in other activities, there are also some disadvantages to consider. One main disadvantage is the absence of intuition and rigidity peculiar to any Automated Forex Trading System. Flexibility of the trading application in use is an important factor to pay attention to when choosing an Automated Forex Trading System. In case the program is flexible enough, under a wise supervision of the trader, it may become a great tool for increasing profit received from Forex trading using Automated Forex Trading

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