Pick the Right Algorithmic Trading Software (2022)

While using algorithmic trading, traders trust their hard-earned money to their trading software. For that reason, the correct piece of computer software is essential to ensure effective and accurate execution of trade orders. On the other hand, faulty software—or one without the required features—may lead to huge losses, especially in the lightning-fast world of algorithmic trading.

A Quick Primer on Algorithmic Trading

Analgorithm is defined as a specific set of step-by-step instructions to complete a particular task. Whether it is the simple-yet-addictive computer game like Pac-Man or a spreadsheet that offers a huge number of functions, each program follows a specific set of instructions based on an underlying algorithm.

Key Takeaways

  • Picking the correct software is essential in developing an algorithmic trading system.
  • A trading algorithm is a step-by-step set of instructions that will guide buy and sell orders.
  • Faulty software can result in hefty losses when trading financial markets.
  • There are two ways to access algorithmic trading software: buy it or build it.
  • Ready-made algorithmic trading software usually offers free trial versions with limited functionality.

Algorithmic trading is the process of using a computer program that follows a defined set of instructions for placing a trade order. The aim of the algorithmic trading program is to dynamically identify profitable opportunities and place the trades in order to generate profits at a speed and frequency that is impossible to match bya human trader.Given the advantages of higher accuracy and lightning-fast execution speed, trading activities based on computer algorithms have gained tremendous popularity.

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Who Uses Algorithmic Trading Software?

Algorithmic trading is dominated by large trading firms, such ashedge funds, investment banks, and proprietary trading firms. Given the abundant resource availability due to their large size, such firmsusually build their own proprietary trading software, including large trading systems with dedicated data centers and support staff.

At an individual level, experienced proprietary traders and quants use algorithmic trading. Proprietary traders, who are less tech-savvy, may purchase ready-made trading software for theiralgorithmic trading needs. The software is either offered by their brokers or purchased from third-party providers. Quants generally have a solid knowledge of both trading and computer programming, and they develop trading software on their own.

Algorithmic Trading Software: Build or Buy?

There are two ways to access algorithmic trading software: build or buy.

Purchasing ready-made software offers quick and timely access while building your own allows full flexibility to customize it to your needs.The automated trading software is often costly to purchase and may be full of loopholes, which, if ignored, may leadto losses. The high cost of the softwaremay also eat intothe realistic profit potential from your algorithmic trading venture. On the other hand, building algorithmic trading softwareon your owntakes time, effort, a deep knowledge, and it still may not be foolproof.

The Key Features of Algorithmic Trading Software

Theriskinvolvedinautomatictrading ishigh, which canlead to largelosses.Regardless of whether youdecideto buy or build, it is important to be familiar with the basic features needed.

Availability of Market and Company Data

All trading algorithms are designed to act on real-time market data and price quotes. A few programs are also customized to account for companyfundamentals data like earnings and P/E ratios. Any algorithmic trading software should have a real-time market data feed, as well as a company data feed. It should be available as a build-in into the system or should have a provision to easily integrate from alternate sources.

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Connectivity to Various Markets

Traders looking to work across multiple markets should note that each exchange might provide its data feed in adifferent format, like TCP/IP, Multicast, or FIX. Your software should be able to accept feeds of different formats. Another option is to go with third-party data vendors like Bloomberg and Reuters, which aggregate market data from different exchanges and provide it in a uniform format to end clients. The algorithmic trading software should be able to process these aggregatedfeeds as needed.

Latency

This is the most important factor for algorithm trading. Latency is the time-delay introduced in the movement of data points from one application to the other. Consider the following sequence of events. It takes 0.2 seconds for a price quote to come from the exchange to your software vendor’s data center (DC), 0.3 seconds from the data center to reach your trading screen, 0.1 seconds for your trading software to process this received quote, 0.3 seconds for it to analyze and place a trade, 0.2 seconds for your trade order to reach your broker, 0.3 seconds for your broker to route your order to the exchange.

Total time elapsed = 0.2 + 0.3 + 0.1 + 0.3 + 0.2 + 0.3 = Total 1.4 seconds.

In today’s dynamic trading world, the original price quote would have changed multiple times within this 1.4 second period. Any delay could make or break your algorithmic trading venture. One needs to keep this latency to the lowest possible level to ensure that you getthe most up-to-date and accurate information without atime gap.

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Latency has been reduced to microseconds, and every attempt should be made to keep it as low as possible in the trading system.A few measures to improve latency include having direct connectivity to the exchange to get data faster by eliminating the vendor in between; improving the trading algorithm so that it takes less than 0.1+0.3 = 0.4 seconds for analysis and decision-making; or by eliminating the broker and directly sending trades to the exchange to save 0.2 seconds.

Configurability and Customization

Most algorithmic trading software offers standard built-in trade algorithms, such as those based on a crossover of the 50-day moving average (MA) with the200-day MA. A trader may like to experiment by switching to the20-dayMA with the 100-dayMA. Unless the software offers such customization of parameters, the trader may be constrained by the built-in fixed functionality. Whether buying or building, the trading software should have a high degree of customization and configurability.

Functionality to Write Custom Programs

MatLab, Python, C++, JAVA, and Perl are the common programming languages used to write trading software. Most trading software sold by third-party vendors offers the ability to write your own custom programs within it. This allows a trader to experiment and try any trading concept. Software that offers coding in the programming language of your choice is obviously preferred.

Backtesting Feature on Historical Data

Backtestingsimulation involves testing a trading strategy on historical data. It assesses the strategy’s practicality and profitability on past data, certifying it for success (or failure or any needed changes).This mandatory feature also needs to be accompanied by the availability of historical data on which the backtesting can be performed.

Integration With Trading Interface

Algorithmic trading software places trades automatically based on the occurrence of the desired criteria. The software shouldhave the necessary connectivity to the broker(s) network for placing the trade or a direct connectivity to the exchange to send the trade orders.

Understanding fees and transaction costs with various brokers is important in the planning process, especially if the trading approach uses frequent trades to attain profitability.

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Plug-n-Play Integration

A trader may be simultaneously using a Bloomberg terminal for price analysis, a broker’s terminal for placing trades,and a Matlab program for trend analysis. Depending upon individual needs, the algorithmic trading software should have easy plug-and-play integration and availableAPIsacross such commonly used trading tools. This ensures scalability, as well as integration.

Platform-Independent Programming

A few programming languages need dedicated platforms. For example, certain versions of C++ may run only on select operating systems, while Perl may run across all operating systems. While building or buying trading software, preference should be given to trading software that is platform-independent and supports platform-independent languages. You never know how your trading will evolve a few months down the line.

The Stuff Under the Hood

A common saying goes, “Even a monkey can click a button to place a trade.” Dependency on computers should not be blind.It is the trader who should understand what is going on under the hood.While buying trading software, one should ask for (and take the time to go through) the detailed documentation that shows the underlying logic of aparticular algorithmic trading software. Avoid any trading software that is a complete blackbox, and that claims to be a secret moneymaking machine.

While building software, be realistic about what you are implementingand be clear about thescenarios where it can fail. Thoroughly backtest the approach before using real money.

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Where to Begin?

Ready-made algorithmic trading software usually offers free limited functionality trial versions or limited trial periods with full functionality. Explore them in full during these trials before buying anything. Do not forget to go through the available documentation in detail.

The Bottom Line

Algorithmic trading software is costly to purchase and difficult to build on your own. Purchasing ready-made software offers quick and timely access, and building your own allows full flexibility to customize it to your needs. Before venturing into algorithmic trading with real money, however, youmust fully understand the core functionality of the trading software. Failure to do so may result inbig losses.

FAQs

Which programming language is best for algorithmic trading? ›

MatLab, Python, C++, JAVA, and Perl are the common programming languages used to write trading software.

Is Python necessary for algo trading? ›

Python makes it easier to write and evaluate algo trading structures because of its functional programming approach. Python code can be easily extended to dynamic algorithms for trading. Python can be used to develop some great trading platforms whereas using C or C++ is a hassle and time-consuming job.

What is the best algorithmic trading software that works? ›

Top Algorithmic Trading Platforms for 2022:
  • Pionex - Best for low trading fees.
  • Coinrule - Best for crypto trading.
  • OANDA - Best for mobile algo trading.
  • Interactive Brokers - Best for experienced algo traders.
  • Zen Trading Strategies - Best free trial.
  • QuantConnect - Best for engineers and developers.

Is Python fast enough for algo trading? ›

You should not use python in algorithmic trading because finding trading strategies isn't about how complex things you build, but rather how many ideas you have time to test. There are alternatives to python on the market that will let you build strategies far quicker.

What software do traders use? ›

Best Stock Trading Software
  • CenterPoint Securities. When you use CenterPoint Securities, you gain direct access to the markets and powerful trading software for advanced, high-volume, momentum and short traders. ...
  • E*TRADE. E*TRADE isn't just a stock trading platform. ...
  • TD Ameritrade. ...
  • Webull. ...
  • Zen Trading. ...
  • TradeZero.
24 Jun 2022

Do algorithmic traders make money? ›

Algorithmic trading is profitable, provided that you get a couple of things right. These things include proper backtesting and validation methods, as well as correct risk management techniques. Unfortunately, many never get this completely right, and therefore end up losing money.

How long does it take to learn Python for algo trading? ›

How Long Will It Take to Learn Python for Trading? It can take around 13 weeks to learn Python for trading with the help of a coding bootcamp. If you apply yourself, this is enough time to learn the syntax as well as some important functions, such as converting a string to integer.

How long does it take to learn algorithmic trading? ›

6 month comprehensive course on Algorithmic Trading with certification
Course FeaturesExecutive Programme in Algorithmic Trading (EPAT)
Course duration6 months via weekend lectures
Course modules14 modules
Faculty members15+
Part-timeYes
30 more rows
25 Jul 2018

What is the success rate of algorithmic trading? ›

In the U.S. stock market and many other developed financial markets, about 60-75 percent of overall trading volume is generated through algorithmic trading according to Select USA. However, in emerging economies like India, the overall trading volume of algorithmic trading is estimated to be around 40 percent.

How do I set up trading algorithms? ›

Success Roadmap: 5 Steps to Create a Trading Algorithm
  1. Step 1: Create a Trading Platform. ...
  2. Step 2: Develop and Visualize Your Trading Algorithm Strategy. ...
  3. Step 3: Define Time Frame and Trading Frequency. ...
  4. Step 4: Test the Trading Algorithm on Historical Data. ...
  5. Step 5: Connect Algorithm To a Live Demo Trading Account.
14 Dec 2021

Where can I learn to trade algorithms? ›

97 results for "algorithmic trading"
  • EDHEC Business School. Investment Management with Python and Machine Learning. ...
  • Indian School of Business. Trading Algorithms. ...
  • Google Cloud. Machine Learning for Trading. ...
  • Free. ...
  • Indian School of Business. ...
  • New York Institute of Finance. ...
  • New York University. ...
  • Free.

How do I get into algorithmic trading? ›

Here are five different routes you can try, depending on what stage you are at in your career.
  1. You need an algo trading internship. ...
  2. You need an excellent undergraduate degree and you may need a Masters qualification too. ...
  3. You might want a scientific Phd. ...
  4. Take a different job and move into algo trading internally.
15 Jan 2021

How do I start algorithmic trading in Python? ›

How to Get Started with Algorithmic Trading in Python
  1. Learn Python Programming. ...
  2. Learn How to Crunch Financial Data. ...
  3. How to Write Fundamental Trading Algorithms. ...
  4. Learn About Backtesting. ...
  5. Performance Metrics — How to Evaluate Trading Strategies. ...
  6. Further Resources.
4 Jan 2021

What language are trading bots written in? ›

Python is a high-level language used for automated trading and preferred by HFTs. It has free open-source libraries and tools that facilitate bot coding and fast transactions.

Is Java better than Python? ›

Java is generally faster and more efficient than Python because it is a compiled language. As an interpreted language, Python has simpler, more concise syntax than Java.

Which trading is best for beginners? ›

For beginners, swing trading is the ultimate trading form since it takes very little time and can be executed even by those who have a full-time job, while still having great profit potential. To provide some perspective you may be able to swing trade by spending as little time as 15 minutes each day only.

What is the best stock market trading software? ›

Best Stock Market Software For Beginners
  • Forex Trading Software.
  • TD Ameritrade.
  • E-trade.
  • Fidelity.
  • Lightspeed is the best web & mobile platform for stock trading software.
  • Investar pro.
  • NinjaTrader.
  • Edelweiss.

Is there any software to predict stock market? ›

ECG Trade – Real Time Technical Analysis Tool

This technical analysis software for stock market provides indicator signals, which even the beginners can understand well and know when to buy and when to sell. Key Features: Provides real-time data about the stock exchange.

How difficult is algorithmic trading? ›

While algo trading may seem easy, it is quite difficult to set up and maintain. It requires the algo trader to do a lot of market research to find some trading edges, code algorithms to take advantage of the trading edges, backtest the strategies, test them for robustness, and launch them to trade.

How much can I earn from algo trading? ›

Algorithmic Trader Salaries in India

The national average salary for a Algorithmic Trader is ₹25,55,138 in India.

How much does trade algo cost? ›

We offer a traditional SAAS software “freemium” business model. Potential customers typically receive a free demo of our platform before licensing an annual subscription. Our general annual subscription cost for our premium real time data tier is between $99 per month and $416 per month.

Can I learn Python in 3 days? ›

It is as easy to learn Python that you can do it in 3 days. Though you will not become an expert in it you will be comfortable in it. After learning the basics you only have to learn to use the libraries according to your work. There are different libraries for different tasks.

Can I learn Python in 10 days? ›

On average, it can take anywhere from five to 10 weeks to learn the basics of Python programming, including object-oriented programming, basic Python syntax, data types, loops, variables, and functions.

Can I learn Python in a month? ›

In general, it takes around two to six months to learn the fundamentals of Python. But you can learn enough to write your first short program in a matter of minutes. Developing mastery of Python's vast array of libraries can take months or years.

What percentage of trading is algorithmic? ›

According to Wall Street data, Algorithmic trading accounts for around 60-73% of the overall US equity trading. As per Select USA, the US financial markets are the largest and most liquid globally.

Can a retail trader do algo-trading? ›

To start, a retail trader would need to either learn how to code, hire specialized tech talents, or pay for expensive legacy software to begin algo-trading. They will also have to find separate platforms that support critical algorithm-validation techniques such as backtesting and paper trading.

How do you create a trading algorithm in Excel? ›

How To Create Your Own Trading Robot In Excel In 10 Steps
  1. Open an account with Interactive Brokers. ...
  2. Download and install the Interactive Brokers Excel API. ...
  3. Think about how you can turn your trading rules into formulas you can use in Excel. ...
  4. Create and test your formulas.

Can anyone do algo trading? ›

Types of roles in Algorithmic Trading

Retail Algo Trading: In India, with the advent of API-based trading on discount brokers, anyone can start trading using algorithms.

How many traders use algorithms? ›

Algorithmic trading accounts for around 60-73% of the overall US equity trading (source: Wall Street).

How accurate is algo trading? ›

The computer, on the other hand, executes the deal following the instructions supplied to it. As a result, Algo trading is extremely accurate, well-executed, well-timed, and free of most human mistakes.

Is Java good for algo trading? ›

Java can be used for algorithmic trading, although the common preferences tend to be Python because of the simplicity and vastness in the field of finance that it offers, and C++. A lot of places provide APIs in Java or C++ too. These languages are good from an execution point of view.

Why is C++ used in high-frequency trading? ›

C++ for high-frequency trading

It is a fast language that can be used to create highly efficient algorithms. C++ is also relatively easy to learn, making it a good choice for beginners. However, C++ can be difficult to debug and is not as user-friendly as some of the other languages used in high-frequency trading.

Is Java used in algorithmic trading? ›

Coin Trader is a Java-based backend for algorithmically trading cryptocurrencies. It provides data collection and export, complex event processing and triggering, and backtesting - paper trading - live trading.

What programming language is trading bots? ›

Python is a high-level language used for automated trading and preferred by HFTs. It has free open-source libraries and tools that facilitate bot coding and fast transactions.

Is coding required for algo trading? ›

Coding or programming is another key skill that is very much essential to pick in order to become a successful algorithmic trader. Contrary to popular belief, programming is not just a requirement to automate a trading strategy but is also required through most of the trading life cycle.

How do I start learning algorithmic trading? ›

In the sections below, we outline the core areas that any aspiring algorithmic trader ought to focus on to learn algorithmic trading.
...
Step 1: Being thorough with the core areas of Algorithmic Trading
  1. Quantitative Analysis or Quantitative Modeling.
  2. Trading knowledge ie. Financial Markets Knowledge.
  3. Programming Skills.
25 Jul 2018

How can I be a good algorithmic trader? ›

Here are five different routes you can try, depending on what stage you are at in your career.
  1. You need an algo trading internship. ...
  2. You need an excellent undergraduate degree and you may need a Masters qualification too. ...
  3. You might want a scientific Phd. ...
  4. Take a different job and move into algo trading internally.
15 Jan 2021

How do you do high frequency trading? ›

The firms in the HFT business operate through multiple strategies to trade and make money. The strategies include different forms of arbitrage—index arbitrage, volatility arbitrage, statistical arbitrage, and merger arbitrage along with global macro, long/short equity, passive market making, and so on.

Why is C++ used in finance? ›

C++ is the programming language of choice in industry for quantitative finance because of its object-oriented nature and its efficiency.

Can I make a trading bot with Java? ›

The central theme of Building Trading Bots Using Java is to create a framework that can facilitate automated trading on most of the brokerage platforms, with minimum changes. At the end of the journey, you will have a working trading bot, with a sample implementation using the OANDA REST API, which is free to use.

Is Java better than Python? ›

Java is generally faster and more efficient than Python because it is a compiled language. As an interpreted language, Python has simpler, more concise syntax than Java.

How do you create an automated trading software? ›

How to build your own automated trading system
  1. Create trading plan. The trading plan acts as a starting point because it helps you define your trading goals and how the system should help you achieve them. ...
  2. Design your system. ...
  3. Deciding on risk management tools. ...
  4. Build. ...
  5. Test and refine.
25 Oct 2021

How do I make an AI trade bot? ›

How to Create An AI Crypto Trading Bot?
  1. Project planning. ...
  2. Choose your IT infrastructure solution and technology stack. ...
  3. Estimate your project. ...
  4. Onboard your development team. ...
  5. Prepare data for training and testing the proposed AI crypto trading bot. ...
  6. Design and implement a robust information security solution.

How do you make a trading bot algorithm? ›

How to Build an Algorithmic Trading Bot in 7 Steps
  1. Step 1: Create accounts for Alpaca and Google Cloud Platform. ...
  2. Step 2: The Python script. ...
  3. Step 3: Connect Alpaca API. ...
  4. Step 4: Create a new email account and add email notification functionality to Python function.
2 Dec 2020

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