One of the main reasons that algorithmic trading has become so popular is its advantages over trading manually. If you want to choose an algorithmic trading platform, it is crucial to look for some essential features before choosing a platform for your trading tasks. Since different algo trading platforms offer different services with their pros and cons, you must act prudently.
Understanding the Basics of Algorithmic Trading
Algorithmic trading systems are also known as mechanical trading systems or automated trading systems that allow you (the trader) to form particular rules for your trade entries and exit. Once you program these rules, they will automatically execute through a computer. Moreover, you know most platforms report 70% to 80% or even higher shares from automatic trading systems on U.S. stock exchanges.
As you write the algorithms beforehand and execute them automatically, the main perk you get is the speed. The speed at which you make these trades are measured in fractions of a second, much quicker than human beings can perceive.
Moreover, a good algo trading platform will also offer you the feature of backtesting. A backtest is a past simulation of an algorithmic trading strategy to determine how your trade would have performed on the data in the old times. The results of Backtest mostly show you the performance of the strategies in terms of losses and profits. Not just this, you can also know about some well-known performance statistics such as Sharpe Ratio or Information ratio that will help you to quantify the strategy’s return on your risk.
But not every algo trading platform is the same and has convenient features for you. Hence, you should ask the following five questions before you choose an algo Trading Platform.
- What Type of Programming Languages are There?
Your choice of a programming language is crucial when considering which platform you should use for automating your trading strategy. Every language has different pros and cons. The most common programming languages you will find for algorithmic trading are C#, C++, Java, R, Python, and MATLAB.
- What about the Latency of the Trading Platform?
It is an essential feature of algorithmic trading. Latency is all about the time-delay of the price movement of a specific application to another application. In other words, the latency for an algorithmic trading platform indicates the time that the application takes in the process.
The speed depends on different factors like packets, processing that professionals have allocated to the application logic, the complication of the calculation involved, programming efficiency, etc. Hence, you must ensure that the latency of the trading platform you choose is acceptable.
After all, slow speed can make or mar your performance in the trading world. Don’t forget that the speed at which your trades are made is evaluated in fractions of a second. It is much quicker than humans can perceive.
- Are There Any Commissions or Costs?
Trading commissions can influence your profits to a massive extent. It will help if you choose the plan that suits your trading needs thoughtfully. Additionally, find out if there are initial or monthly charges. You should also check the platform offering you against it to ensure you are only paying for services that you want.
- Does the Platform Have A Functional Interface, Technical Support & Customer Service?
Your computer does a lot of the heavy lifting, but you still need to manage and adjust the algorithmic trading system when it is required. Hence, choose the platform that has a navigable interface so you can make changes on the go.
Everyone expects an excellent algorithmic Trading system with a high up-time and that the platform hardly goes out of service. So, before you choose any trading platform, you need to check the history of outages, and if there have been any other problems in the past. Find out how quickly the users were able to solve those issues. And also, check if the support team was knowledgeable and helpful.
- Does the Trading Platform Allow You to Diversify Your Trades?
Ask your provider if the trading platform you choose will allow you to trade various accounts or different strategies simultaneously. When you have this feature in your trading platform, it allows you to spread risk over different instruments and create a hedge against losing positions.
To sum up, once you have the right questions to ask about the algorithmic trading platform, you end up choosing the right, suitable, easy to use, and most efficient trading platform for your trading endeavours. So, don’t miss out on the discussed questions before you pick an algo trading platform.