Algorithmic & Quantitative Trading- Some Basics

1. Algorithmic & Quantitative Trading: Some Basics Technology in trading has progressed a lot in past few years. Algorithmic trading has come into existence recently, and it refers to the technique which makes use of the software programs to do automatic trading. In this kind of trading, the entry and the exit points of trades are fixed, and the trade automatically triggers when the trading condition is met. Let’s understand the advantages and disadvantages of quantitative trading in detail: Benefits of Algorithmic Trading • A key advantage such trading is that it does away with the emotional side of the trading as all the trades are executed with the help of computer programs which make use of the advanced

2. algorithms. Excessive greed and emotions are the main cause of loses and it is where computer-based algorithmic trading helps. • It also helps in maintaining the discipline as far as trading is concerned, because the entry and the exit rules are pre-defined and the chances of violating trading rule are almost impossible. In stock markets things change very fast, and if the traders lose discipline, they end up making loses. • Speed is another advantage of algorithmic trading. In stock market, every second count and the speed factor makes this trading a favored option amongst the traders. Disadvantages of Algorithmic Trading • One of the biggest advantages of algorithmic trading is that it is not 100 percent accurate. It has the scope of failing, and a single glitch can trigger many orders which can affect the prices of the stock abruptly leading to panic and volatility. • This kind of trading requires skills and abilities, and it can be done only by those who have required knowledge and the expertise. It means that not everyone can trade. • This trading is not universal. It means that it can’t be applied to every situation and one has to alter the algorithm for doing all kind of trades. Quantitative trading strategies are used extensively by the forex traders, and they often implement a high-frequency approach and trading algorithms. These arbitrage positions are based on

3. the averages. Although many market analysts say that quantitative trading artificially adds to price volatility. Probability and price often define the trading opportunities, volume and moving averages are some of the standard inputs in the trading models. In earlier days, the quantitative models were reserved for hedge funds, but today, most of the trading applications are perfectly capable of executing the trades using the quantitative strategies. A quantitative trading system consists of four components: • Strategy Identification-It relates to finding a strategy, exploiting an edge and deciding on the trading frequency as well. • Strategy Back Testing- It involves obtaining data, analyzing strategy and removing the biases. • Execution System-It links to brokerage automate the trading and minimize the costs of the transactions. • Management Of Risks- It relates to optimal allocation of the capital, “bet size.” Identification of Strategy All the processes start with the initial research. In this period strategy is found to see whether the strategy fits into a portfolio of other strategies. You may have to take into account your capital requirements to see how the transaction costs will affect the strategy.

4. Back Testing One goal of the back-testing is to ensure that the strategy identified above is working well when it is applied to the historical as well as the sample data. Execution Systems It is the means by which the list of the trades generated by the strategy are sent and executed by the broker. Risk Management It takes care of the technology risks, financial risks, and all other such risks. Contact Us AlgorithmicTrading 702 W. Idaho Street Suite 1100 Boise, ID 83702 USA Ph: 866-759-6546 Emai Id: sales@algorithmictrading.net Website: https://algorithmictrading.net/