Forex Trading: Algorithmic Trading
Algorithmic Trading
Hello, I'm Alex. Want to know all about Algorithmic Trading? If you are interested in trading currency or trading it more effectively if you already do so, it is highly recommended that you consider algorithmic trading solutions....
That's why we've created this special page within the site to advise and to provide all the tricks and tips you need to become Algorithmic Trading expert.
Algorithmic Trading or automated trading is the term used for electronic stock market trading that uses a complex computer algorithm to control the buying and selling of stocks, shares and other investment products. The computer program or algorithm deals with certain key aspects or parameters for trading these can include; quantity, time or price. The use of these complex computer programs removes the need for human invention in trading and therefore speeds up and streamlines the process.
Automated trading is used by many large hedge funds, pension funds and mutual funds allowing them to divide many large scale trades into small chunks and therefore minimise risk and exposure in the market place. The use of high speed technology is central to the success of Algorithmic Trading as it allows the end users to partake in High-frequency trading.
Speed is vital in the success of high-frequency trading and the security and reliability of the technology is vital. Typically the traders with the fastest execution of trades, those that can process the data at the quickest speeds will be the most profitable. In 2009 it was estimated that more than 50% of all trades carried out on the stock exchange where completed using algorithmic trading methods.
Computer based stock trading has been on the rise since the early 1970s but didn't really take hold until the increases in computer processing power in the 1980s. The equity and futures markets were the leaders in using technology to process large scale trades on a daily basis. The knock on effect of the use of technology has been a decline in the number of traders employed as computer programs and high speed Ethernet connections have replaced these jobs.
The increased use of automated trading is a direct result of the requirement of the finical markets for higher levels of liquidity. The high speed of the trades allows for an increased through put in the market and this in turns increase the general levels of liquidity. Changes in the minimum tick size from 1/16th of a dollar ($0.0625) to $0.01 per share, provided a boost to algorithmic trading by allowing for smaller differences between the bid and offer prices they decreased the market-makers' trading advantage, thus increasing market liquidity.
The majority of algorithmic trading is carried out using the Financial Information eXchange (FIX) protocol. FIX was initially created by Robert "Bob" Lamoureux for electronic equity trading between Fidelity Investments and Salomon Brothers in 1992. It has since been widely adopted by the market as a whole. FIX is used by both the sell side any buy side of the major financial markets. As the processes of algorithmic trading have become more complex the protocols required to action them have also developed. The basic FIX protocol is now supplemented by the FIXatdl (FIX Algorithmic Trading Definition Language) the latest version of 1.1 is released to the market in March 2010.
The success of algorithmic trading can been seen in the report released in August 2009 by the TABB. The report estimated that the 300 securities firms and hedge funds that specialize in rapid fire algorithmic trading took in roughly $21 billion in profits in 2008.
Wouldn't you know it; algorithms have caught up with the world of Forex trading. Some schools of thought think it's not a good idea and makes things far too complex, others think it's the best thing since sliced bread.
Whatever line of reasoning you happen to agree with, all that really matters is you find something that works as a trading strategy for you. So before you plunge into the world of Forex trading, check out everything you'll need to know, including how algorithmic trading work.
There is nothing worse than getting your feet wet with something you really want to do and not taking the time to find out the various ins and outs. That is guaranteed to trip you up later if you don't pay attention to what you need to know right up front.
Algorithmic trading is truly becoming extremely popular because very simply, technology has rapidly advanced to the point where algorithmic trading is easier to accomplish than trying to trade without it. Recent surveys show that close to a third of the market appreciate algorithmic trading and make it work to their benefit.
For those of you just getting into the Forex market, algorithmic trading strategies let you take advantage of automated traders. That's right, they do the trading for you because they're more effective that you are; more effective than anyone else either. Imagine that, automated trading because humans can't do the same kind of job.
Auto trader programs are created and designed to make sure you end up on the winning side of any trades you initiate. This isn't to say they are 100% guaranteed to bring home the bacon, but in the vast majority of instances, you win. Some argue auto traders don't have human intuition, a crucial part of Forex trading. On the other hand, these programs analyze market data 24/7/365 right by the book.
To put this another way; the algorithmic trading programs stalk market trends and react virtually instantaneously to accomplish a trade. Thanks to the fact that they act as fast as they do, this reduces the number of losses you may experience during the day. There is no time lag and things get done "right now."
This is how these programs work. They buy at the beginning of a price incline or trend and keep track of where the prices are going. The instant there is an inclination of a price drop, the program sells to max your profits. Then the cycle starts all over again. It's like having a live broker in your computer around the clock; one who never sleeps.
Two bonus reasons to love algorithmic trading: they are great for the person who doesn't want to be totally tied down to trading all day every day, and an excellent choice for beginners. For beginners? Yes, because the program is automated, beginners don't need to know much to get started.
The best trading indicator is the one which no one is using at the time. It could be either because nobody know about it or people think that it does not work any more .
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Mini forex trading is a way for people without a lot of money to trade the forex. It's also ideal for fthose brand new to forex trading.
Mini forex trading allows those new to forex trading to get a feel for it wihtout risking the amount of capital you would normally use when trading the forex.
So how can mini forex trading help you to make trading profits?
The reason for the 'mini' is obvious. The forex trading contracts are much smaller than the typical forex trading contracts. Mini contracts are about one tenth the size of a typical forex trading contract.
Mini forex trading is an advisable way to start trading the forex if you are staring with a small sum of money. You can test various forex trading systems without a lot o risk, keep good records on your trades and the result, and refine your trading techniques.
Then, as your trading improves and you build your portfolio, you can graduate from mini forex trading to larger, more typical forex trading contracts with confidence that you have a profitable trading system in place.
You can open a mini forex trading account with a lot less money, usually around $300 instead of the thousands required for a typical forex account. The high leverage available to forex traders still applies but you are obviously risking a lot less money in a mini forex account.
Keep in mind, your money is just as much at risk in a mini forex trading account as it is in a regular account. You just don't have as much at risk to lose. But you can still lose it all, and then some, due to the leverage options available.
This means that you need a trading system in place and you must adhere to that system with iron fisted discipline and not let emotion get in the way and cause you more problems and headaches.
Even in a mini forex account, you still need to know what you are doing and be familiar with various forex trading ideas and systems such as trade signals, proper chart points, targets, stop-loss and more.
With the right strategies in place, mini forex trading can be quite profitable but you need to do your homework before risking your money.
There are a lot of great benefits to forex trading - and some of the better benefits are available for people who are just starting out. Free demo accounts, information, and news are available - allowing newbies to learn about the market while practicing their trading skills. Mini and Micro trading will also greatly benefit amateurs as these accounts can let them trade in the forex market without risking too much money.
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The foreign currency trading market, or forex, is the largest market in the world. Many traders believe that they must have the top forex trading course in order to make money in the market. There is a huge industry that has developed in order to "teach" people how to trade this market.
Just because there is a course available does not mean that this course will teach you how to trade the forex profitably. Unfortunately, people are paying thousands of dollars for seminars, courses, and hundreds signals or trades each month and not learning how to profit in this market.
The agency that is the guardian of the forex market, the CFTC, requires that anyone who produces a product on trading the forex, place a disclaimer that the forex is risky and promises of profits are unsubstantiated.
Over 95% of first-time forex traders lose their account because they are not ready to trade. The good news is that you can open up a free trading account and practice before you invest your money.
It is recommended that the beginning trader start with an inexpensive forex e-book and test out the trading methods from the book in their practice demo account before trying the trading method in a live account.
You can also trade by receiving forex trades by e-mail. Signal companies charge hundreds monthly for these, but there are free forex signals that can make you money. Again, trade these signals in your demo account before you invest your money. Wealth System Solutions has discovered an inexpensive, profitable signal company whose signals can be auto-traded.
Will you make money every month? This is one of the biggest misconceptions about the forex market that people make. Making money in the forex is not linear. A forex course will make money for you almost every month and in the long run, will give you profits. Many new traders jump from system to system because they lose money one month only to find that the next trading system makes them money, but not every month. The exponential power of the forex will make you money like no other investment. The more money you earn, the more money you will make.
When you are ready to begin trading forex in a live account, many brokers will tell you that you can begin in a mini account for only $250. While it is true that you can open a forex account with that amount of money, it really does not give you the leverage to see your trade move up and down and give you profit. I recommend you start trading in a mini account with at least a thousand dollars. If you wish to open a standard account, it is suggested that you begin with at least ten thousand dollars to minimize your risk. In fact, our forex broker recommends that we deposit at least $2,500 in a mini account or $25,000 in a standard account for our auto-trading system.