2. • A pre-defined step-by-step method to accomplish a task
• A computer model that takes an order and structures a
sequence of trades
• Computer programs that generate buy and sell orders
and make lightning-quick trades
• It is the automated execution of trading orders decided
by quantitative market models.
3. Objectives:
• Minimize cost compared to a defined benchmark
• Maximizing fill rate
• Minimizing execution risk
• More reliable and faster execution platforms
(computer sciences)
• More comprehensive and accurate prediction models
(mathematics)
4. What are the trends behind it?
• Regulatory Changes
• Electronification of Markets
• Improve Scale & Efficiency
• Desire for Anonymity
• Realization that Trading Is a Source of “Incremental Alpha”
• Desire to Reduce Explicit and Implicit Trading Costs
5. Various Types of Algorithms in the Market
• Arrival price
• Time weighted average price (TWAP)
• Volume weighted average price (VWAP)
• Market-on-close (MOC)
6. Areas of Concern while setting Algorithms
• Lack of Visibility
• Algorithms Acting on Other Algorithms
• Which Algorithm to Use?
• Missing Ingredient—The Trader’s Gut Feel
7. What is the process?
1. Generate or improve a trading idea.
2. Quantify the idea and build a model for it.
3. Back test the strategy.
4. Collect the performance statistics.
5. If the statistics are not good enough, go back to #1.
6. If the strategy does not add significant value to the existing portfolio,
go back to #1.
7. Implement the strategy on the execution platform.
8. Trade.
8. Simple trading system design
a strategy a strategy a strategy a strategy a strategy a strategy a strategy
BROKER
Exchanges
9. What are the advantages?
• Move First
• Customise Quickly
• Rapidly Evolve
• Gain Access to Multiple Liquidity Pools
• Operate within Multiple Asset Classes
...
10. Cont…
• Integrate Real-time News into Algorithmic Trading
• Design for Low Latency Decisions
• Research and Back test Strategies
• Learn from Experience
• Integrate Risk Management with Algorithmic Trading
11. Issue with the Algorithmic Trade
• Filtration
• Consistency
• Internal Order Matching
• Rapid Strategy Implementation
• Safety
12. Conclusion
• Algo trading is a very competitive field in which technology is
a crucial factor.
• With the help of the algorithmic trading system the trade
activity becomes faster.
• But after all it is totally depends on the technology
• There are lots of example of crashing in the market due to
algorithmic trade system.
• So one has to not depend fully on the algorithmic system.
