- Algorithmic trading — often referred to as automated trading — can be summarised as using computer code to execute pre-defined strategies on financial markets with minimal human intervention.
- The algorithmic trader does not need to follow the markets all day long because the computer program executes trading decisions automatically.
- Individuals who choose to trade with algorithms would typically code their own programs. These trading applications would process the market data before making a decision based on certain pre-defined factors.
- In partnership with MetaTrader 4, Rakuten Securities Australia is helping traders program a vast number of algorithmic templates using the MQL4 language.
Algorithmic trading makes for more than 70% of all CFDs, forex, metal, indices, and stock market transactions in developed markets, according to an SEC report. If you could set up a computer to execute on specific market factors, could you become a professional trader? Algorithms are divorced from emotional turmoil and irrational mistakes. Traders themselves have to deal with fluctuating emotional states, which can distract beginners from making the right decision. So, what happens when traders outsource their strategy execution and create automated trading systems using computer code? This process is called algorithmic trading. It usually comes with more questions than answers, and we will cover them below.
What is an algorithm?
Before we can dive into the topic, we have to explain the smallest common unit of algorithmic trading — an algorithm. Algorithms are a set of instructions designed to solve a problem, accomplish a goal, or finish a task. The complexity of algorithms can range from simple cooking recipes to an uber-complicated Google search engine. Most devices nowadays run on algorithmic software. So how can algorithms help traders perform better on the MetaTrader4 Platform?
What is Algorithmic Trading?
Big corporations, high-frequency trading, and quant wizards are some of the first associations that come to mind when people think of algorithmic (sometimes referred to as ‘algo’) trading. But there is more to the story. Traders today have more tools at their disposal than ever before. Besides the market order types, mobile software, and accessible brokers, the most misunderstood tools fall within the broad strokes of algorithmic trading software. We would not recommend high-frequency trading to individual traders for the sheer complexity of building such systems. Luckily, today’s technology and software development has brought algo trading to retail investors. Algorithmic trading is a form of automated trading that enables traders to use computer code, chart analysis, and other economic factors to open and close positions. If you are someone who’s interested in data science, loves finance, and want to outsource your trading decisions to a system that has more communal force, algorithmic trading can be the right choice for your trading strategy.
How to trade with algorithms
Rakuten Securities Australia (RSA) has partnered with MT4 to provide you with the best possible trading service. Besides the conventional trading systems, traders can automate their decision-making and execution with the help of computer code. Ideally, algorithmic traders would prefer to code their own programs. These applications process the market data and make decisions based on several pre-defined factors. For example, traders can instruct the trading software to follow 12 and 24-day Exponential Moving Averages (EMAs). Every time these two EMAs cross one over the other, your program can execute a buy or sell order. Please, bear in mind that this is only an example and not a recommended algorithmic trading strategy. In order to create a fantastic experience for algorithmic coding, RSA’s software makes it easy to create automated trading systems. Coders can use any of the following to bring about their best algorithmic strategy.
- MQL4 Language
- MetaEditor
- Strategy Tester
- Extensive Available Library
MetaTrader 4 helps beginner traders to personalise a vast number of trading templates. Expert Advisor (EA) is an excellent example of this practice. This algorithmic process helps traders stay on top of their strategy. Every time a set of market conditions are met, EA generates a signal for traders to sell or buy an asset. This system can be tweaked and adjusted at the client’s personal discretion. RSA’s Strategy Tester is another good example of how to trade with algorithms. Traders can use a program to check if a particular trading strategy has worked in the past. For example, you can analyse if the trading algorithm strategy has been successful over the past few months, years, or even decades. RSA has created a back-testing module where you can test your future strategy using algorithmic trading software.
The biggest obstacle
Traders have to master several technical requirements before they can start coding their trading strategy. If you are not a programmer, block some time to learn the ropes. MQL4 language is an obstacle for non-programmers but easy to master for everyone who knows how to code C++. MQL4 is based on C++. It has a similar structure, classes, and enumerations. Without knowing the language, it’s tough to build algorithms, even with the extensive library. If you’re feeling lost when it comes to coding but still want to program a trading system, then there may be another alternative. Individual traders outsource the software-building process to professional companies that specialise in building automated trading systems. You still have to know how you want to use your system, so it is preferred to have trading skills beforehand.
Try a free demo account today
Algorithmic trading is a form of automated trading that enables traders to use computer code, chart analysis, and other economic factors to open and close positions. If you’re interested in automating more effective trading systems, then algorithmic trading will pique your interest. Rakuten Securities Australia (RSA) has partnered with MT4 to provide you with the best possible trading service. Ideally, algorithmic traders would prefer to code their own programs. These trading applications would process the market data and make decisions based on several pre-defined factors. Your capital is at risk If you decide to invest real money to test the crossover of your programming and trading skills. Investing doesn’t guarantee a return. Your equity could depreciate. We suggest trying a free demo account first. Your trading demo account will help you automate and adjust trading systems in conditions that mimic live markets. As a result, you can enjoy all the rush of real markets while eliminating the entirety of your risk.