Recently, more people are becoming aware of India’s financial markets. Of late, Indian traders have received a tremendous influx of new capital due to interest from foreign investors. This rise in capital has increased demand for derivatives trading options.
This sudden bull market is excellent news if you’re looking for ways to make money on the side or as a full-time vocation. It’s also good news if you work on the buy-side because that means more job openings at hedge funds and other financial companies in India. Because there is no shortage of opportunities in India presently, there will be a large amount of competition when applying for jobs.
We’ll explore some known and trusted tips and tricks to give yourself an edge when starting algorithmic trading.
What is algorithmic trading?
It uses computers to place orders into the financial markets automatically. These computer programs are designed to identify and exploit price discrepancies between different markets. They can be used to trade stocks, options, futures, or any other type of security.
You can use algorithmic trading in any market condition. Regardless of the market trending up or down, you can use algorithms to take advantage of price movements. It makes it an extremely versatile tool for traders.
How does algorithmic trading programs work?
Now that we have a general understanding of algorithmic trading, let’s look at how an algorithmic trading program works. An algorithm begins with a set of rules known as the input. The input consists of hundreds or thousands of variables such as market prices, order book, and volume. If you’re not sure what some of these terms mean, don’t worry; follow this link to learn more about options trading in India.
Immediately after the computer program receives the inputs, it enters into an automated cycle where it simulates an order to buy (or sell) a certain quantity at a specific price. Upon receiving this simulated order, the program would place an actual order on the financial market and then automatically update its factors upon receiving new information from those markets.
This entire process would then repeat itself and again at a fast rate, potentially thousands of times each minute. The result is that you get an order book and price chart that closely resembles what would happen if a human trader were placing orders manually.
This process can be highly complex, requiring the use of highly advanced algorithms which incorporate statistical analysis, risk management, machine learning, and even input from evolutionary computation.
However, you don’t need to possess every algorithm created to succeed in algorithmic trading. You only need to understand how your particular algorithmic program works.
Create a demo account
The best way to familiarise yourself with your algorithmic trading program is by creating demo accounts (fake money accounts) at different brokerages and trading platforms. These demo accounts will allow you to experiment with various order types and settings to determine which ones perform the best.
Once this is done, getting your demo account to mirror the live market as closely as possible is a simple process. The more accurately your algorithmic trading program performs on a demo account, the higher is chance for success in live trading once it’s been implemented into a brokerage account or investment fund.
Below are three brief overviews about different factors that will come into play when looking for a job as an algorithmic trader:
1.) What brokers offer the best platforms?
2.) How much capital should I have to get started?
3.) Which order types work best with my strategy?
These questions and many others will be answered using a demo account to test your algorithmic strategy. After you’ve determined the best settings, it’s time to open up a brokerage account and begin trading with real money. Keep track of each trade made using an excel doc or something similar so that you’re able to determine what the best average return is.