How to Choose Best Algorithmic Trading Software

Choosing the best algorithmic trading software is sometimes challenging for the Traders. Before going through this trading instrument, you need to understand the concept of it along with the capacity to meet your needs.

November 18, 2019, | AtoZ MarketsThe best Algorithmic trading software allows the trader to trade perfectly & automatically. However, the whole process is not simple like that. Before proceeding to the algorithmic trading strategy, a trader should have a suitable forex trading strategy. The automatic trading tools speed up the traditional trading strategy only. However, acquiring the best algorithmic software may increase your profitability in trading. In this article, we will see two different ways to choose the best algorithmic trading software along with the other things that a trader needs to consider.

What is Algorithmic Trading?

An algorithm is a specific set of systematic instructions that completes a specific task. It is simple like computer games or spreadsheets that has many functions. The algorithm follows a specific set of instructions based on the strategy set into it.

However, Algorithmic trading is the process of using computer software that follows predefined instructions to take a trade order. This trading software identifies profitable opportunities that place the trades in order to generate profits. The main characteristic of the process is that it can perform at a speed and frequency that is impossible by the human brain.

Nowadays, algorithmic trading has become popular due to its fast execution speed & trading activities.

Users of the Best Algorithmic Trading Software

The main users of the algorithmic trading software are the investment banks, large hedge funds, and proprietary trading firms. In most cases, the larger firms have built their own trading systems with dedicated data centers and support staff.

At a retail level, experienced proprietary traders use the algorithmic trading. Many proprietary traders purchase a readymade trading software based on their trading needs. Mainly Forex Brokers and other third-party providers make the software and sell to the traders.

However, some forex brokers provide free algorithmic trading software based on some conditions. Moreover, some Quantitative Analyst with good programming knowledge develops their own software.

How to Choose?

In order to be a successful trader, even algorithmically you should know yourself. It sounds strange but true, as the forex trading is a mind game. Algorithmic trading may lose your all money from your investment. Therefore, it is quite necessary to Choose Best Algorithmic Trading Software before proceeding to trade.

#1 Build the Algorithmic Trading Software Based on trading Psychology

It is the most important part of before going through details of trading software. Like other trading methods, Algorithmic trading requires a significant degree of discipline, patience, and emotional impartiality. At first, you need to make sure the trading software will not interfere with your strategy after executing the trade.

This part is extremely difficult, especially when the trader faces an extended drawdown. Many strategies with a highly profitable back-test can ruin the total balance with simple interference. Therefore, before proceeding to any type of trading strategy, you should test yourself mentally.

#2 Identify the Trading Strategy

After setting up your brain for trading, you should know what type of trader you are. You should question yourself- how much time you can spend on trading?

The answer will help to determine the trading strategy with the frequency of trades. For a full time employed person, it is impossible to grab the intraday trading strategy. The trading methodology and strategy depends on your available time for the trade. The algorithmic trading strategy will be perfect for those who have a lot of time. However, the trading software will have a little impact on the overall trading activities. Hence, you should perform continual research into your trading strategies to maintain a profitable portfolio. Some trading methods stay "under the radar" forever. Therefore, ask yourself whether you are prepared to do the trading activities or not.

Best Algorithmic Trading Software

#3 Affordable Trading Capital

The generally accepted ideal minimum amount for a computable strategy is $50,000. However, the amount may differ based on the trading strategy and algorithm. Moreover, for high- frequency strategies, you need sufficient capital to absorb when in the time of drawdown.
If you are thinking of starting the trade with less than $10,000, you should restrict yourself to low-frequency strategies. In that case, you can trade only one or two assets. Otherwise, transaction costs will eat into your returns. Interactive Brokers, with the Best Algorithmic Trading Software, has a retail account minimum of $10,000.

#4 Build Best Algorithmic Trading Software

It is important to have the programming skill to create the best algorithmic trading software. Therefore, you need to have knowledge about the programming language such as C++, Java, or Python. This knowledge will allow you to explore the higher frequency strategies with full control of your "technology stack." You need to perform several tests to eliminate bugs. This process requires more concentrations and you should spend much time coding up the infrastructures. Therefore, you should work hard at the beginning of the algo career.

Moreover, you should know how much you want from the algorithmic trading strategy. It might be as a regular income or can be a passive income.  The strategy of long term trading is not the same for the short term scalping methods. For regular income, there will be a higher withdrawal that requires a high- frequency trading strategy with lower volatility.

Outsourcing Algorithmic Trading Ideas

It is often hard for all traders to build the best algorithmic trading software to achieve their trading goals. Therefore, they focus on finding software from the market by hiring or buying. However, you should consider some precautions  while outsourcing the best algorithmic trading software for you:

#1 Market and Company Data

All trading algorithms act well on real-time market data and price quotes. Some programs are customized based on the company's fundamental data. In most of the algorithmic trading software, there are real-time market data along with the company data feed. However, you should find the software that has a provision to integrate from alternate sources.

For the multiple market use, you should confirm that the data feed is in a different format, like Multicast, TCP/IP, or a FIX. The software should be capable to aggregate market data from different exchanges. The algorithmic trading software should be able to process these aggregated feeds when required.

#2 Customization & Configuration

Most algorithmic trading software offers a built-in trade algorithm. Some software has a crossover of the 50-day moving average (MA) with the 200-day MA. In that case, traders can change the experiment by switching to another moving average. The trader will perform this when the software allows only. Best algorithmic trading software has options for a high degree of customization and configuration.
In the algorithmic trading software, the Python, Matlab, C++, JAVA, and Perl are the common programming languages. However, most of the software has the option to write your own custom programs. This allows a trader to justify any trading concept he develops. In that sense, the best algorithmic trading software offers to code in the programming language of your choice.

#3 Latency

This is the most important feature of algorithmic trading. Latency is the time-delay of the price movement of one application to another. Say, it takes 0.4 seconds to transfer the price quote from the exchange to the vendor’s data center. The 0.2 seconds to reach the data to your trading screen. Then 0.1 second from the software to receive a quote. Moreover, 0.1 seconds to analyze and taking entry. Then the process completes with 0.2 seconds to reach the broker and 0.2 seconds from broker to exchange. Therefore, total time passed = 0.4 + 0.2 + 0.1 + 0.1 + 0.2 + 0.2 = Total 1.2 seconds.

Best Algorithmic Trading Software
The original price takes 1.2 seconds to complete the process. This delay is harmful to the algorithmic trading strategy. The Best algorithmic trading software should minimize the time as much as lower. Direct connection with the exchange will provide faster data eliminating the mediums.

#4 Back-testing Features

Back-testing allows the trader to justify a trading strategy on historical data. It assesses the performance and profitability of past data. Back-testing certifies the success or failure of a trading strategy. The back-testing capability and historical data is a mandatory feature for the best algorithmic trading software.


Finally, do not make any mistake by believing the Algorithmic trading software as a money-making machine. The algorithmic trading strategy is not a get-rich-quick scheme rather than it is a become-poor-quick scheme.  It takes significant research, discipline, and patience to be successful at algorithmic trading. It can take months to generate consistent profitability.

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