Why Algorithmic Trading?

In today’s world everyone is stimulated to earn money as the whole society is structured around ways of becoming rich and many if not most success stories are linked to trading of which the fundamental idea is to capitalize on the purchases of stocks. Modern technology allows you to easily buy and sell with only a couple of clicks.

However, many people are put off by the idea because they don’t have time nor energy to get proper trading education or become fully immersed in the world of trading financial markets. We still remember the fall of Long Term Capital Management (LTCM) hedge fund run by two Nobel Prize winners. The total loss was $4.4 billion less than one year and it was 93% of total amount under management. The story reveals that even geniuses fail and the best education will not guarantee you solid profit because we are all invariably prone to human error. Especially if we are talking about fully utilizing the potential of trading, which involves a countless number of factors a human mind, cannot even account for.

This is when algorithmic trading comes into play, also known as automated trading or in slang black box trading. In 2014 more than 75% of all stocks traded were handled by algorithmic machines. It thus becomes clear that to be competitive one needs not good education and skills, but rather the most efficient algorithm. Furthermore, algorithms are not solely used in stock markets. Their application has proved to be very diverse for example it is also used in options, futures, FX and cryptocurrencies! And who knows where else algorithms will expand to.

So, what makes the so called black box trading so popular? The answer is simple: an algorithm, if coded correctly is better than human in trading hands down. This is the modern reality.

Just think about it, the computer can process, analyze, backtest and execute hundreds transactions at a time before a human will even notice an opportunity, which means an opportunity gone!

Modern technology allows algorithms to perform all of the functions above, but on top of that, they scan for favorable conditions on other markets too.

Writing a profitable algorithm is a very rigorous and challenging process that requires multiple steps to be undertaken before any actual work can begin. At QUANTOR we work on resources and necessary tools to get you started, so that you can enter the world of large and most importantly stable returns not seen in regular trading by investing in particular algorithm or developing your own. You would also be able to backtest your strategy to see how it would have historically performed on markets as if it was trading at that time. After the test, you will get results such as, drawdown, sharp ratio, annual return and so on. The next stage will include generated ‘‘future’’ markets based on current predictions, trends and market behavior, and through this test you will gain a better understanding of how well your system is performing. The last step of testing will be run on a virtual account, but in the environment of real market to see if the system can be profitable if real money was involved. After all successfully completed tests, algorithms.

So why algorithmic trading? Because it allows you to be far more aware of the risks and be certain that a good trading strategy translated in to programming code will generate a stable profit unlike regular trading where no guarantees can ever be made. This is exactly why anyone who is looking to trade is ought to try this method of trading.