Algorithmic trading – what is it?

Retail trading (manual) is the main type of trade in financial markets, but not the only one. Various trading software are gaining in popularity, making it easier for traders to do most of the basic and routine tasks. Newcomers to the market choose the path of least resistance and use automatic trading. However, it is worth noting that this method is not suitable for everyone due to its cost and complexity. This method is resorted to because the machine does not have feelings or emotions that will not interfere with the trade. There are initially built-in indicators in the algorithm that will be clearly executed by the program.

Algorithmic trading dates back to 1980. Only wealthy market participants (rich people, institutional investors, world banks) could afford it. Now the situation has changed: thanks to the availability of a computer to every first network user, everyone can try algorithmic or automatic trading, but specialized software will still have to pay well.

Definition

Algorithmic trading is a type of trading in which one large order is broken up into many small ones, using special crushing algorithms. The price characteristics of each order are processed and then sent for execution. The main purpose of this method is to execute orders. Everyone knows that the more a order is placed on the market, the more difficult it is to enforce, that is, to find a second party that agrees to buy or sell an asset. But if you break it down into many small ones, the probability of their execution is much higher. Let’s take an example.

The trader has 10,000 BTC that he wants to sell. If he puts the entire lot up for sale at an average market price of $50,000 per BTC, the buyer should pay him $500 million. Why is it not profitable to put such a volume of assets on the stock exchange?

1. Seeing a large lot in the glass of orders, other market participants will begin to reduce the price in order to sell their assets faster, thus the price for it will begin to decline rapidly.
2. A large number of assets are bought by large market participants, and transactions are usually carried out through over-the-counter (OTC) platforms, so that this does not affect the price of the asset in any way.

It turns out that dividing by many small orders saves a trader’s profit, because the price of an asset does not fall and the probability of execution increases.

Basic concepts

As we’ve already discovered, algorithmic trading is a software for trade or a trading robot. In this software there is a trading algorithm: position size, take profit and stop loss, other orders and other. In 2021, there are two main types of robots:

1. Automated. The bot’s software contains all the necessary information about the trading process, after which it analyzes the market itself, opens and closes trades, and selects the lot size.
2. Semi-automated. Here, the robots analyze the market and provide information about the most relevant transactions. The right to open and close a trade remains with the trader.

Automated robots tend to be more popular. In fact, a semi-automated bot performs a technical analysis that a trader can perform independently, but it does not have to pay for it.

Advantages and disadvantages

Algorithmic trading accounts for about 60% of all transactions in financial markets. At such an impressive rate, it seems that trading robots can’t have minuses, but they don’t. Talk about the advantages and disadvantages of algorithmic trading:

Advantages 

1. Speed. A person will not be able to simultaneously conduct a technical analysis of several assets and open many transactions, which a trading robot can handle.
2. Accuracy. When setting the opening and closing prices, extra symbols will not be accidentally exposed, which can happen to a person.
3. Versatility and scalability. By purchasing a trading robot from an experienced trader, there is a chance that it is designed with high quality. If this is the case, then the software can be configured for trading in any markets, as well as upgraded and supplemented with new settings.
4. Reduces the threshold for entering the markets. It’s not about money, it’s about knowing the markets. A beginner who has purchased trading software from experienced traders can ask for an effective working strategy. After setting it up, you can start making a profit from the first days of trading.
5. Trading robots are not subject to emotions and doubts that can interfere with trading.
6. Trade at any time. It happens that you have to wait a long time for the right entry point. It may appear at a time when the trader does not have the ability to manually place a trade. The trading robot will need a computer turned on and access to the network in order to monitor the market situation 24/7 and open the necessary transactions.

Disadvantages

1. Price. For good trading software, you will have to pay a lot of money. If you find a cheap offer on the Internet, then there is a chance that the trading robot will not meet the expectations.
2. The technical component. In addition to buying a robot, it needs to be properly configured, which implies a certain amount of technical and trading knowledge. If the trader does not have them, then you will have to pay for it again.
3. Machine thinking. Just the fact that the robot functions according to the specified settings may not go into the hands of the trader. In those moments when a market participant can abandon their strategy and conduct transactions in a completely different way, thereby saving their deposit, the robot will adhere to the specified settings.

What should I do?

Algorithmic trading is a good option for trading, but not for everyone. This requires both good capital and some knowledge of markets. If you have an understanding of the markets but do not have the means to afford expensive software for algorithmic trading – use the services of RevenueBot.

Our service is a designer of trading bots that can be traded on top cryptocurrency exchanges: Binance, FTX, Exmo, Bitfinex and others. RevenueBot has been on the market since 2018 and since its inception the service has thoroughly elaborated the offered services. The advantages include the following:

1. Variety in configurations bot that allows to implement many trading strategies.
2. The service does not charge for the creation of a trading bot. The commission starts to be charged only from the moment the bot receives profit. The commission size is 20% of the profit, but not more than 50 USD per month, for each of the three types of trade: SPOT, Futures USDS-M, Futures Coin-M.
3. The trader does not need to keep the computer on 24/7 because the bot functions from cloud storage.
4. The bot is connected to the exchanges by means of API-keys, which ensure the fastest updating of quotes.
5. The service has a marketplace on which you can buy the ready configuration of the bot, sell the profit and get extra earnings, as well as buy a mentoring service from an experienced user.
6. A referral program, with the help of which the service’s clients receive income without even starting trading.
7. The knowledge base and operational support solve any client issues.

You can find out more about RevenueBot on the official website of the service.