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Algorithmic Trading

Algorithmic trading uses computer programs and models to automate the execution of trades according to quantitative analysis. It aims to minimize costs, maximize fills, minimize risks, and provide faster and more reliable execution through improved technologies and prediction models. Trends driving its growth include regulatory changes, market electronification, a desire for scale, efficiency, and anonymity, and a need to reduce trading costs and gain incremental returns. Common algorithm types include arrival price, TWAP, VWAP, and MOC strategies. Areas of concern in algorithm design include lack of visibility, interactions between algorithms, strategy selection, and missing human judgment. The process involves developing and testing trading ideas, building models, backtesting performance, implementing strategies, and trading. While

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Umang Bhokan
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405 views13 pages

Algorithmic Trading

Algorithmic trading uses computer programs and models to automate the execution of trades according to quantitative analysis. It aims to minimize costs, maximize fills, minimize risks, and provide faster and more reliable execution through improved technologies and prediction models. Trends driving its growth include regulatory changes, market electronification, a desire for scale, efficiency, and anonymity, and a need to reduce trading costs and gain incremental returns. Common algorithm types include arrival price, TWAP, VWAP, and MOC strategies. Areas of concern in algorithm design include lack of visibility, interactions between algorithms, strategy selection, and missing human judgment. The process involves developing and testing trading ideas, building models, backtesting performance, implementing strategies, and trading. While

Uploaded by

Umang Bhokan
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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A pre-defined step-by-step method to accomplish a task A computer model that takes an order and structures a sequence of trades Computer

er programs that generate buy and sell orders and make lightning-quick trades It is the automated execution of trading orders decided by quantitative market models.

Objectives:
Minimize cost compared to a defined benchmark Maximizing fill rate Minimizing execution risk More reliable and faster execution platforms (computer sciences) More comprehensive and accurate prediction models (mathematics)

What are the trends behind it?


Regulatory Changes

Electronification of Markets
Improve Scale & Efficiency Desire for Anonymity Realization that Trading Is a Source of Incremental Alpha Desire to Reduce Explicit and Implicit Trading Costs

Various Types of Algorithms in the Market


Arrival price Time weighted average price (TWAP)

Volume weighted average price (VWAP)


Market-on-close (MOC)

Areas of Concern while setting Algorithms


Lack of Visibility Algorithms Acting on Other Algorithms Which Algorithm to Use? Missing IngredientThe Traders Gut Feel

What is the process?


1. 2. 3. 4. Generate or improve a trading idea. Quantify the idea and build a model for it. Back test the strategy. Collect the performance statistics.

5.
6. 7. 8.

If the statistics are not good enough, go back to #1.


If the strategy does not add significant value to the existing portfolio, go back to #1. Implement the strategy on the execution platform. Trade.

Simple trading system design


a strategy a strategy a strategy a strategy a strategy a strategy a strategy

BROKER

Exchanges

What are the advantages?


Move First Customise Quickly Rapidly Evolve Gain Access to Multiple Liquidity Pools

Operate within Multiple Asset Classes


...

Contd
Integrate Real-time News into Algorithmic Trading Design for Low Latency Decisions

Research and Backtest Strategies


Learn from Experience Integrate Risk Management with Algorithmic Trading

Issue with the Algorithmic Trade


Filtration Consistency Internal Order Matching Rapid Strategy Implementation

Safety

Conclusion
Algo trading is a very competitive field in which technology is a crucial factor. With the help of the algorithmic trading system the trade activity becomes faster. But after all it is totally depends on the technology There are lots of example of crashing in the market due to algorithmic trade system. So one has to not depend fully on the algorithmic system.

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