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Algorithmic Trading Software Basics – Trade Efficiently with Algorithmic Software

  • 15-16 min read
  • October 21, 2021
  • 👍 Rating — 4.3 (4 votes)

The secret of business success lies in an entrepreneur’s ability to be flexible, utilize efficient tools and ability to make off-the-shelf decisions. All hedge funds and sophisticated asset managers now use algorithms for trading based on things like machine technical analysis and payment for order flow processing. Moreover, there are algorithms that analyze heaps of annual reports, earnings reports, analyst ratings and even sentiment on forums such as reddit to complement human fundamental research on the basis of and help decide on entering long-term positions. But sometimes the two of the aforementioned thrusts are combined, whereby computerized technical analysis is used to enter long-term positions at better price points.

It is then a no-brainer that smaller investment firms have to develop software to trade and even help them better enter long-term positions so as to compete with the prowess of bigger players and harness their own abilities to generate Alpha. New trading strategies can reshape the business and streamline all the trading processes and ensure accurate execution of trade orders. Algorithmic trading software assists with gathering data, monitoring patterns as well as quickly responding to price movement by pouncing and taking advantage of market opportunities and the ability it bestows to make money. It presents the next-generation solution for your company enabling you to create or refine available trading algorithms and automate your trading.

In this article, we will take a deeper insight into the very process of algorithmic trading software development, which specialists you will need, highlight the priority features and provide an estimation of the development costs.

Trade with Speed and Clarity by Trading with Algorithmic Software

Algorithmic trading is a way to conduct business utilizing computer coding to open and close trades in accordance with a certain set of rules. It comprises data reflecting price movement in the underlying market. As soon as the conditions on the market correspond to predetermined criteria – algos can perform a buy or sell procedure on behalf of the trader. Thus, you kill two birds with one stone – save time and eliminate the need to strenuously monitor the market.

The right algorithmic stock market trading software will be able to work with the following details:

  • Chart analysis
  • Price arbitrage
  • Price movement
  • Volume
  • Volatility

algorithmic trading

The growing demand for market surveillance and the emergence of AI(Artificial Intelligence) in the financial services sector accelerate the necessity to implement stock market algorithmic software. Trading algorithms software enables traders to identify liquidity opportunities, using the received data to make smart trading decisions. Moreover, it enables to:

  • Eliminate human error
  • Capitalise on rare or special events
  • Update existing strategies
  • Improve the risk management – you apply algorithms to implement stops and limits on your behalf
  • Minimal interference  – tune  algos  to trade around your schedule
  • Back testing – it refines the available algorithms, detecting and offering the best possible combination of buy and sell parameters
  • Maximize the revenue due to instant buy and sell execution
  • Performance statistics
  • Respond faster
  • Stay tuned  – notifications in real-time
  • On-the-go trade management

Benefits of Algorithmic Trading Platform

Business digitalization is a solution that contributes to the growth and prosperity of any company. You need to react quickly, be flexible and non-stop seize opportunities to optimize the processes, and be able to develop and grow. Developing your own algorithmic trading platform is a reasonable investment that will definitely pay off within a reasonable amount of time. It is no wonder that the number of people eager to update their trading methods with the support of automated trading software increases every year. They seek out innovative software for the plenty of benefits and opportunities it offers and you can get this software too!  It has proven to be a key trigger able to spearhead and kick-start fast-paced success. 

A successful business needs to be regularly modernized and upgraded. Custom trading software development can boost the performance of your company, finding deals and turning trading into a quick and profitable experience instead of an ordeal. Humans are driven by emotions, and they are physically unable to monitor a big number of deals or place bets driven only by cold calculations. Thus, the best possible solution is choosing to use an algorithmic trading platform.

Оnly Algorithmic Software Strategies that are Triggered will Use your Buying Power

Today, there exist plenty of trading strategies to choose from. They are widely applicable and vary hugely in usage across many sophisticated traders in their intricate nuances. Advanced analytics are constantly evolving and incorporating new strategies and advancing new, edited forms of previous algorithmic software strategies. 

Here are the core strategies employed:


Arbitrage
This strategy is profitable thanks to price differentials. When a dual-listed stock is bought at a lower price in one market (taking into considerations floated stock and forex), it can be sold at a higher price in another market at the same time. This is known as risk-free profit out of price differential or arbitrage. With an algorithm that identifies price differentials and places orders accordingly, one can enjoy significant profits with no risk.
Trend-following strategies
To follow trends in moving averages is still the most widespread strategy, in algorithmic trading software too. Trading that uses this strategy also monitors channel breakouts and price levels. This strategy is the simplest because it does not include predictions or price forecasts. Frequency of the desirable trend dictates this kind of trading. Therefore, this strategy can be easily implemented into the algorithm. You will have a programmed trading algorithm based on 50 and 200-day moving averages.
Index Fund Rebalancing
When it comes to index funds, there are certain time intervals when re-balancing occurs. It happens to bring index fund holdings to par with their benchmark indices. Traders capitalize on expected trades offering 20 to 80 basis points profits which depends on the quantity of stocks in certain index funds right before re-balancing happens.
Mathematical model-based strategies
There are proven mathematical models like, for example, delta-neutral strategy. Delta-neutral option consists of the variety of positions with either positive or negative deltas. This ratio is a comparison of the asset’s price change and change in the price of its derivative.
Mean Reversion or Trading Range
This stock market algorithm software is based on the assumption that high or low prices are temporary and that assets revert to their average value periodically. Certain algorithms can adjust buying and selling to when prices go above or below their average price.
Volume-weighted Average Price (VWAP)
Using VWAP strategy consists of breaking up a large order into smaller ones to phase the orders into the market, using stock specific historical volume profiles. It is done so that the order is executed close to the volume-weighted average price (VWAP)
Time Weighted Average Price (TWAP)
TWAP strategy consists of breaking up a large order into smaller ones to gradually release it into the market, using evenly divided time intervals between start and end time. It is done to minimize market impact by placing the order closer to the average price between the start and end times on the market.
Percentage of Volume (POV)
This algorithm sends partial orders that are adjusted to the defined participation ratio and taking into consideration the volume traded on the markets. The so-called “steps strategy” makes orders at a percentage of the market volumes defined by the user. The algorithm either increases or decreases the participation rate depending on whether the stock price reaches levels defined by a user.
Implementation Shortfall
Implementation shortfall is the sum of execution cost and the opportunity cost incurred in case of adverse market movement between the time of the trading decision and order execution. Using this strategy, the aim is to keep the implementation shortfall as low as possible. This strategy increases the targeted participation rate if stock prices move to a trader’s advantage, and decreases it if the stock price moves to a trader’s disadvantage. In other words, it decreases the possibility of a trader to lose if price changes in between the time decision is made and time it is executed.
Other Non-Usual Trading Algorithms
There are high-tech front-running algorithms at play as well. These algorithms detect other algorithms on the side used by a sell-side market maker. Thus, traders are encouraged to use algorithm strategies not to lose to those who already use algorithmic strategies to identify large order opportunities.

Technical Requirements for Automated Trading Software Development

The basis for the algorithmic trading software is a sophisticated trading platform that uses computer algorithms to monitor markets for certain conditions. Stock market algorithm software enables to spot a trend reversals and perform a trade in the blink of an eye. However, algos work only is specific conditions and are not universal. Thus, it is necessary to understand when to deploy them.

Technical requirements:

  • Historical dataset for backtesting;
  • Infrastructure and ecosystem to backtest the algorithm before it is used on real markets;
  • Computer programming knowledge, trading software or hired software developers to program the algorithm trading strategy;
  • Access to market data feeds to allow its thorough monitoring by the algorithm;
  • Access to trading platforms and network connectivity to allow placing orders
  • A modifiable data pre-processing environment – which supports multiple data streams, filters for irrelevant data, and temporal data partitioning
  • A distributed processing environment – which supports multiple processing units (clusters), real-time performance monitoring, a message oriented communication framework, scheduling of temporal data sets, load balancing, and data replication
  • Individual processing units – which supports in-memory queues, and complex event processing (on temporal data)
  • A storage area network (SAN) – which supports temporal data aggregation, continuous querying, and logging (for audit trails)
  • A data recovery (DR) environment – replicates the SAN and order management system
  • An integration environment – which exposes a standard API for components and connects internal and external components to one another
  • An order management system – which supports concurrent input streams, passive redundancy and load-balancing, ACID criteria on orders, an audit trail, and is replicated
  • A system usage environment – which supports multiple user profiles and exposes a fully managed front-end to the algorithmic trading system
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Rely on Advanced Technology with GBKSOFT Custom Trading Software Development

In the age of globalization, businesses greatly depend on technology.

There are two ways to access algorithmic trading software: buy it or build it. Ready-made algorithmic trading software usually offer free trial versions with limited sets of features. It lacks security, scalability and interoperability. Faulty software can result in hefty losses when trading in financial markets, thus choose your technology carefully. 

stock market

Having years of experience in delivering custom built solutions, GBKSOFT enables companies to beat the market with efficient trading solutions. We offer Custom Trading app development

 Custom built Algorithmic Software by GBKSOFT

  • gives access to predetermined preferable markets
  • eliminates latency – custom trading software development decreases the latency to the minimum and saves your investments and enables to access the same market as a human trader does
  •  functional and user-friendly interface – navigable and intuitive interface enabling to introduce on-the-fly changes
  • allows to program your individual unique trading strategy
  • detailed back testing across multiple timeframes

How to Make Algo Trading Software?

Strong technical skills of GBKSOFT’s developing team allows to deliver the algorithmic software, that guarantees security, wide coverage, and scalability. We deliver tools that allow Startup traders and traders already with some professional experience to never miss investment opportunities and always be dialed in and on top of their game.

 

Make trading decisions Create trading orders Manage orders
Get market data – download, filter, and store structured and unstructured data. Get trade information – for each decision, get the security symbol, price, quantity, etc Manage pending orders – for each order, validate and confirm that order
Define trading strategy – specify new trading rules and strategies.  Create trading order – for each decision, specify an order type and add trade information. There are six order types: long, short, market, limit, stop, and conditional Route / submit orders – route each order to an exchange, dark pool, or brokerage
Analyze securities against trading strategy – for each security, obtain data and filter it through the trading strategy to determine which security to buy. Manage submitted orders – track status of each submitted order, if order is matched then create an open position. If order is not matched then stop that order

Use Advanced Algo Trading Software with GBKSOFT 

Being involved in the trading industry means always having to keep up with the fast-paced world of finance, since new opportunities bring profits. Be 100% in control of your trades at any time and location with the ability to simulate live trading performance before taking on risk with GBKSOFT solutions! 

Features of algorithmic trading software by GBKSOFT:

  • Customizable dashboards
  • Automated orders
  • Graphic visualization
  • Access to fundamental data
  • Tools for checking real-time quotes
  • Backtesting
  • Tools for scanning and searching for opportunities
  • Trading calendar
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Related post
Here at GBKSOFT we build all kinds of fintech solutions starting with trading platforms and ending with investment applications. Read this article to find out what makes a good fintech application and what it takes to build one.

Why GBKSOFT?

Our experts create stable and continuous technology for the trading industry enabling businesses to balance risks, value and technical feasibility through utilizing our efficient development methodology. We actively participate in the entire process from setting up the project until the product reaches the end-user offering high quality support even after the deployment.

successful cooperation

  • Domain expertise – having a profound experience in the sphere we can cut the development cycle and deliver the product of the highest quality, since we are aware of all the nuances that can arise
  • Scalability – to perform under the increased workload
  • Performance –  quick response time and high processing throughput
  • Modifiability – to introduce changes to trading strategies and data processing
  • Auditability – financial compliance
  • Security – orders should be obfuscated using programmed trading strategies
  • Fault tolerance – to avoid financial losses
  • Interoperability – able to operate with a diverse range of related systems, such as order management systems, portfolio management systems, risk management systems, accounting systems, and even banking systems

At GBKSOFT we utilize the productive methodology building MVP providing highly interactive user experience. We start the process with research, wireframing, creating Prototype and testing. We conduct all kinds of testing, and use modern UX tools to create user-friendly interfaces. Agile methodology that we use is perfectly suited for projects of this kind. Sprints allow to make the development process quicker and the scope more flexible. Our prototyping methodology helps to work out all the features of the product to provide the release version that will fully reflect the desire of the client and works smoothly. Here is the approximate estimation of our projects:

Stage Dev hours Dev cost 
Specifications 111 h $2664
Design 78 h $1560
HTML/CSS 329 h $9212
JS Development  328 h $9840
PHP Development  826 h $24780
Testing  383 h $6894
Admin 29 h $580
Scrum Master  332 h $6972
Total 2396 h 62192$

Successful Projects Built by GBKSOFT

Trading is a source of additional income for people who are ready to react quickly to changes and are flexible enough to adapt to an unstable environment. At GBKSOFT, we have built a functional and beneficial App for traders. One of our latest successful projects is a truly innovative trading application with high-end functionality. 

ticker tocker app

While building the algorithmic trading platform, we have paid great attention to the visual component. Thus, we have decided to put a great emphasis on:

  • The design of visual charts. It can be changed according to the visual preferences of the end-user, so that the needed information can be easily spotted and identified. 
  • A user may choose a criterion and time period of their interest, and the relevant data (real-time or historical) will be plotted onto a chart. The App enables users to access the summarized data gathered based on many indicators in view of a comprehensive table.
  • Subscription to top traders is the feature that was specifically created for the people who don’t feel confident enough to rely on their own decisions. So they can learn, go off of and get inspired by the professional/successful traders.
  • There are many useful additional functions, including Social Media Integration, Instant Messaging, Trade Bar, Analytics Tools, Filtering tools, Advanced Search, etc.

The feedback of the customer was very inspiring:

“At first, I felt hesitant about trusting such a complex project to outsource developers. But, fortunately, my concerns appeared to be absolutely unfounded. GBKSOFT team did amazing job! And I was pleasantly surprised by how well-established processes they have.”

Satisfied client

The Ticker Tocker Trading Platform App is the mobile application of the popular web trading productivity platform designed to help retail and professional traders to quickly find, test, learn, share and execute trades. 

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CONCLUSION

According to the statistics the algorithmic trading market is and will be growing at a CAGR of 11.23% between 2021-2026. The emergence of AI presents a major factor influencing the growth of the market. It assists greatly in creating new trading optimization opportunities that algorithmic trading software presents. The ability to compete on the market directly depends on the technology solutions in use, which are to optimize the trading process and protect against the various risks of losing funds. 

Custom trading software development can become a breath of fresh air for your business and boost your trading results. It can optimize the trading process, automate the monitoring and make the best trades at the blink of an eye. Custom software built with utilization of Agile methodologies means guarantee, security, scalability and interoperability. It is the lucky ticket for your prosperous future on the market.

Lack of control is difficult for some traders to accept Successful strategies in backtests may falter in real life Easy to over-optimize your strategy Many robots or expert advisors have questionable success rates
Algo trading has been contributing to the market rebound after the March of 2020 lows reached by the stock market. Additionally, there are a lot of cross-border transaction and forex trading. Thus, algorithmic execution tools in foreign exchange have increased significantly since March of 2020. As per the latest Survey by JPMorgan, more than 60% of trades for ticket sizes bigger than USD 10 million were executed in March via an algorithm.

Creator

I am a content creator with 7+ years of writing experience. My expertise lies in Business, Education, Science, Software, and Industry. Technology-focused and software-reliant. Focused on research developments, technological breakthroughs, and the latest scientific innovations. Lover of context and nuance. I believe that the devil is in the details, and if you can combine and control all the details in a text, it will become a powerful marketing weapon.
Alexandra Rostovtseva

Expert

Being a proficient leader with over 10 years of experience in Project and Product Management, Business Development and Sales, I have strong skills in Negotiations, Crisis, Client and Risk management. Being an outstanding communicator I’m also a good mentor and leader in the tech industry. Experience and expertise are the key foundations in my ability to provide deep insights into the industry and as result I’ve also been published or was a contributor to several tech and business articles.
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Sylwia
Jul 28, 2021 at 3:46 PM

I like such useful materials, I’ll be back for more

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