When going for an automated trading platform it is very important to look for some important features before you decide on the automated trading platform you want to trade on. Different automated trading platforms offer different services which have their own pros and cons and might suit certain strategies and better than the others.
We have discussed important features that you should consider while choosing an algorithmic trading platform.
Select The Right Automated Trading Platform
BacktestingA backtest is a historical simulation of an algorithmic trading strategy to see how it would’ve performed on the data in the past. Backtest results usually show the strategy’s performance in terms of profits and losses and some popular performance statistics like Sharpe Ratio or Information ratio which help to quantify the strategy’s return on risk. Hence a good backtesting software can be a great plus for an automated trading platform. Backtests can be divided into two categories ‘Research Backtesters’ and ‘Event-Driven Backtesting’.
Programming LanguagesChoice of a programming language is very important while deciding which platform to use for automating your trading strategy. Different languages have different pros and cons. Most commonly used programming languages used for algorithmic trading are C++, C#, Java, R, Python, and MATLAB. You can refer to one of our recent posts on top backtesting platforms where we’ve discussed popular programming languages.
DataDifferent automated trading platforms provide access to/support trading/backtesting of certain securities only; some provide specific access to data feeds like Bloomberg and Thomson/Reuters. For instance, there are platforms dedicated to Forex trading or Equities trading only that too in specific markets. You need to make sure what the automated trading platform offers and then decide based on your needs. The frequency of data that you would need should also be taken into account. Some strategies would require daily EOD data while some other strategies might require intraday trading data.
Web-Based PlatformSome automated trading platforms also provide the web-based platform for online trading and backtesting which makes it easy and convenient to access your trading platform anywhere. The web-based platform may have less number of features compared to the desktop trading platform.
ComplexityDifferent automated stock trading platforms vary in ease of use. Some platforms may require actual programming expertise while others may not. Most platforms provide a demo version which can help you decide what fits your comfort level. The complexity of platforms can be different for different assets traded, and one should check the different tools & features available to analyze the specific asset class.
Number of Strategies AllowedSometimes there might be restrictions on the number of long or short strategies loaded on a particular account and you might need extra accounts for more strategies. You should also check if you have enough memory on your computer for multiple accounts if required as it can be memory intensive. Some platforms also offer their own trading strategies as add-ons which can be subscribed by paying a periodic or one-time fee.
Commissions/CostsTrading commissions can impact your profits to a great extent. Carefully choose the plan which suits your trading requirements. Also, check if there are initial and/or monthly fees and what is offered against it to make sure you are only paying for services which you actually want.
Technical Support & Customer ServiceAutomated Trading platforms are expected to have an extremely high “up-time” and rarely go out of service. Before choosing the platform you should check the history of outages and if there have been any other issues in the past, how soon were those resolved, and how knowledgeable and helpful was the support team.
Frequently Asked Questions about the Future of Algorithmic TradingHere are some of the most commonly asked questions which we came across during our Ask Me Anything session on Algorithmic Trading.
Question: We are an FPI, how to handle multiple strategies in a brokerage account when there are no sub-accounts with a broker?Reply: If you are an FPI I would need to know if you are a category 2 or category 3 but you can still run multiple accounts on a single CTCL ID. Since you mentioned FPI I will assume you are talking about Indian markets. So yes, that can be done if your platform supports that and you don’t need a sub-account for it. Another option is that you can go for multiple accounts and you can map multiple accounts on a single machine. There are vendors who can help you with that depending upon what kind of trading platforms you are using.
Question: How can a sub-broker benefit from algorithmic trading? Is it possible to automate algorithmic trading strategies for all my clients? Also, is stochastic also covered?Reply: Even as a sub-broker you can use your broker to get the approval for your algorithmic trading strategies, so yes that is possible. For your clients as well the same thing applies, so your broker will have to get the approval. I am not sure if we are talking about the technical analysis stochastic & statistical stochastic here but in either case, both can be covered in any strategy.
Question: In India, what all brokers support algorithmic trading and on which platform?Reply: Not a lot of them but there are few (who may not be purely algo in the strict sense) who support programmatic trading in which you can make use of some programmes including semi-algo, and algo. There are few algo-supported brokers who include the likes of Zerodha, Interactive Brokers, Master Trust. The programming base can be different for all the brokers.
Question: Which API interface do you suggest for Interactive Brokers?Reply: There are a few which I have labelled, in fact, IB has come up with their own APIs as well as there are some wrappers which have been build including one created by Dr. Hui Liu who is one of the instructors in EPAT as well. So you can use those to straight-out send orders in Python.
Question: Are there any good websites for backtesting in writing LFT strategies in India NSE, MCX and BSE markets?Reply: Not a lot. We are working on tools that can offer all these services for the markets so stay tuned on that. We are working on a lot of things at QuantInsti so you should be seeing some action on filling the gaps which have been left out to ensure all our participants, as well as the users in general, get better exposure and access.
- Automated Trading: Order Management System
- What Is Market Microstructure?
- What Is Backtesting A Trading Strategy?
- Automated Trading: Order Management System
QuantInsti® aids people in acquiring skill sets which can be applied across various trading instruments and platforms. The Executive Programme in Algorithmic Trading (EPAT®) course covers training modules like Statistics & Econometrics, Financial Computing & Technology, and Algorithmic & Quantitative Trading. EPAT® equips you with the required skill sets to be a successful trader.Disclaimer: All data and information provided in this article are for informational purposes only. QuantInsti® makes no representations as to accuracy, completeness, currentness, suitability, or validity of any information in this article and will not be liable for any errors, omissions, or delays in this information or any losses, injuries, or damages arising from its display or use. All information is provided on an as-is basis.