How to Choose the Perfect Algorithm Trading Software?

When going for an automated trading platform it is quintessential to look for some important features before you decide on the algorithm trading software you want to trade on. Different algorithm trading software’s offer different services which have their own pros and cons and might even suit certain strategies and even better than the others. While using algorithm trading, traders trust their hard-earned money to the algorithm trading software they actually use. In order to make sure effective and accurate execution of trade orders, you have to choose the right algorithm trading software. Software without the necessary features might lead to huge losses.

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A Quick Glance at Algorithm Trading

An algorithm is defined as a particular set of step-by-step instructions to complete a specific task. Algorithm trading is defined as the process of using a computer program that follows a definite set of instructions for placing the trade order. The main aim of algorithm trading software is to dynamically identify profitable opportunities and place the trades so as to generate profits at a speed and frequency that is impossible to match by a human order. Because of the advantages of higher accuracy and lightning-fast execution speed, trading activities based on algorithms have gained immense popularity over the years.

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Who makes use of Algorithm Trading Software?

Algo trading is used by large trading firms like investment banks and proprietary trading firms. The abundant resource availability because of the large size, big organizations usually build their own proprietary software, including large trading systems with dedicated data centres and support staff. If we talk at an individual level, experienced proprietary traders use algo trading. Proprietary traders might purchase readymade trading software for their algorithm trading needs.

What should be the Key Features of your Algorithm Trading Software?

The risk involved in algorithm trading is high, which in turn can lead to huge losses. Irrespective of the fact whether you decide to buy or build, it is essential to be familiar with the basic features required in your algorithm trading software:

  • Availability of Market and Company Data

All the algorithm trading software’s are so designed that they act on real-time market data and price quotes. Any algorithm trading software must have a real-time data feed, as well as a company data feed. It should be available as a built-in into the system or must have a provision to easily integrate from alternate sources.

  • Connectivity to Various Markets

Traders looking to work across multiple markets must note that each exchange might provide its data feed in a different format. Your algorithm trading software should be able to accept feeds of different formats. Hence, your algorithm trading software should be able to process the aggregated feeds as required.

  • Configurability and Customization

Most of the algorithm trading software offer standard built-in trade algorithms, like those based on a crossover of the 50-day moving average (MA) with 200-day MA. A trader might like to experiment by switching to the 20-day MA with the 100-day MA. Until and unless you software offers such customization of parameters, the trader might be constrained by the built-ins fixed functionality. So whether buying or building, the algorithm trading software must have a high degree of customization and configurability.

  • Backtesting on Historical Data

Backtesting simulation comprises a trading strategy on historical data. It evaluates the practicality and profitability of the strategy on past data. This must-have feature also needs to be accompanied by an availability of historical data, on which the backtesting can be performed.

  • Integration with Trading Interface

Algorithm trading software places trades automatically on the basis of occurrence of the desired criteria. The software must have the required connectivity to the broker network in order to place the trade.

  • Platform-Independent Programming

There are few programming languages that require dedicated platforms. For instance, some versions of C++ might run only on selected operating systems, while Perl might run across all the operating systems. So if you are looking to build or buy trading software, preference should be given to the algorithm trading software which is platform-independent and supports platform-independent languages.

While building an algorithm trading software, be realistic about what you are implementing and be crystal clear about the situations where it can fail. Hence, thoroughly backtest it before putting it to use with your real money.

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Conclusion

Algorithm trading software is expensive and also difficult to build on your own. Purchasing ready-made software offers you quick and timely access, and building your own enables full flexibility to get it customized as per your needs. Before making use of algo trading with real money, you must understand the core functionality of the algorithm trading software, as failing to do so might result in considerable losses.

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About the Author: Gaurav Singh

Gaurav Singh is a freelance blogger who loves to read about everything under the sun and finds pleasure in talking about things he learns in this journey of life.

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