Why Algo Trading is the present and future of trading - Expert explains

Algorithm Trading is a trending topic these days in the market; trading has always been on the lookout for evolving technologies to profit from new-age data. And algo trading is controlling seventy-five per cent of the total trades on the Indian markets. Hemant Sood, Managing Director, Findoc Group and Angel Investor in Start-ups, explains why Algo Trading is the present and the future of trading:-

Explaining the concept, Hemant Sood said, "Algo trading is something where the software will trade for the consumer itself and he or she is not required to be physically present. Algo trading doesn’t mean free of human interventions. Initially, manual work needs to be done, but after few steps, it is free from the tiresome task of manual trading. When we trade manually, we tend to miss many opportunities like the entry and exit points due to volatility, or sometimes we don’t trade due to improper knowledge and risks. Algo trading helps overcome all these problems."

Further, Sood explains, "This means that the individual will contribute more time to developing winning strategies and less time to executing them. It is a set of pre-defined instructions or algorithms that are punched in the software used for placing the trades in the market. This execution is majorly based on the trading strategy that is back tested on historical data.  One should follow simple step-by-step process of forming a strategy, coding it with a computer language, back testing through various ways and then making it live in the markets."

Talking about necessary perquisites by the individual Algo trader, "The Algo trading profession requires considerable hands-on skills to create a successful working model in the market. Developing programming skills - Programming is required to put the quant's trading ideas into action. To do this, one must have sound knowledge of computer languages like C++/R/Java/Python. Without this, the process of trading remains incomplete at the execution stage. When the strategy is ready, one needs to learn how to punch in that strategy in technological language to be friendly with the software and do trading."

"Adequate trading knowledge and experience - A good programmer will not be able to do much with their knowledge unless he/she has a thorough understanding of the financial markets. One must become a profitable trader first and then learn other required parts. We all enter the market intending to make profits. Only a successful strategy will get us profits and that needs to be brainstormed, which is done with experience and market knowledge," he said.

He advises, "Read free resources and books available: With the rising popularity of the topic, there are many resources available on the internet. This includes various blogs, YouTube videos, podcasts, knowledgeable webinars, and plenty of free courses provided by websites like Udemy, Coursera, etc."

"Get some professional help," says Sood. "At the end, it can be cumbersome for a single person to do everything on his/her own. It would be beneficial to reach out to the market practitioners and brokers who have relevant track records and experience in this field."

"Above all, Algo trading is a profession that requires ultimate dedication and patience to develop and execute the strategies in the market. As the systems are based on changing prices, there can be significant losses if not done with full proof. A few other challenges can be network issues, real-time price delays, malfunctioning of the computer, and flawed algorithms," Sood concluded on Algo Trading.