In a nutshell, algo trading (short for algorithmic trading) allows you to automate some or all, of your online investment endeavours. The underlying technology can research the financial markets autonomously and then send signals or make trades on your behalf.
In this article, we explore the ins and outs of algo trading, review the best trading platforms and provide some helpful information on choosing the right platform for you.
What is Algo Trading?
In its most basic form, algo trading automates your online trading activities. Algo trading software is usually based on cutting-edge technologies like machine learning and artificial intelligence. The technology is tasked with scanning the financial markets on a 24/7 basis.
This might include specific asset classes or a range of financial instruments. For example, while a Bitcoin robot focuses exclusively on Bitcoin trading, some algo trading platforms cover forex, stocks, crypto, and commodities. Either way, the overarching concept is that algo trading removes the need to perform your technical analysis.
Once the algorithmic trading software finds a potential trading opportunity, it will do one of two things. The first possibility is that the Algo trading platform will send you a real-time notification with details of what the software has found. This will be a trading signal, meaning you will receive the required entry and exit orders.
This semi-automated strategy is excellent for those who want to alleviate the cumbersome process of spending hours researching the markets but still want control over their trades.
For those looking for a fully automated end-to-end process, other algo trading platforms will place buy and sell orders on your behalf. If the algorithm is successful in what it does, you could potentially passively earn income, although no guarantee will happen.
Some online brokers offer copy trading tools that allow you to copy the trades of other traders. While these differ from algo trading bots, they are still algo trading because the copy trading software is based on algorithms.
How do Algo Trading Platforms Work?
Algo trading platforms allow you to invest money into the financial markets in an automated manner. The entity behind the platform will have personally designed and built the algo trading software from the ground up. This means the algo trading software is only as good as the person or people who created it.
Most algo trading platforms will then ask you to make a minimum deposit, typically in the region of $200-$300. This then gives you access to the algo trading bot, and you can usually modify the settings to match your preferred financial instruments.
The bot will scan the financial markets throughout the day, using computer codes and chart analysis, constantly looking for trading opportunities. Once it finds one, the algo trading bot will send you a notification, known as a trading signal, with the relevant details.
Suppose you are using a fully automated algorithmic trading platform. In that case, the provider will place buy and sell orders for you, allowing you to trade the financial markets without lifting a finger. Alternatively, you can decide which trades to make based on the signals you receive from the algo trading robot.
Are Algo Trading Platforms Scams?
It all sounds good to be true, right? Is it possible to simply deposit a few hundred dollars into an algo trading platform and then earn a ‘guaranteed’ income without needing to do any of the hard work?
The critical problem is that many providers in the algo trading space are scam artists. They make hyperbole claims that they will never be able to realize. This is why finding a credible algo trading platform online is so difficult.
That said, several algorithmic trading platforms are active in the space with a good track record. Such providers typically offer lower minimum deposits, demo accounts, or a money-back guarantee, so you are never 100% committed until you are ready to move to the next level. Ultimately, if you end up using a provider that our team has not pre-vetted, you will need to ensure to perform heaps of independent research.
There are also now many regulated online brokers and trading platforms that offer forms of algo trading. We recommend using such licensed providers to protect your account and your funds are kept securely in segregated accounts.
Pros & Cons of Algo Trading
- Lots of scam algo trading providers active in the space
- You will need to deposit funds to activate the software
- No guarantee that you will make any money
The Best Algo Trading Platforms for 2024
Want to try out algo trading for yourself? With heaps of providers active in the market, most of which promise guaranteed double-digit monthly returns, knowing which provider to go with can be challenging. To help you out, pick out the best algo trading platforms of 2024.
Some other algo trading tools include:
Finding the Right Algo Trading Provider for you
Hundreds, if not thousands, of providers, are active in the online space offering algo trading products. As bold as some promises of guaranteed returns are, most are scams. With this in mind, you must research providers before signing up.
To help you along the way, below you will find a list of considerations you must make before choosing an algo trading platform.
- Semi or Fully Automated
Your first port of call will be to assess the level of automation the algo trading platform provides. For example, some platforms will automate the research process, where the software scans the financial markets on your behalf and then send you a signal once a trading opportunity has been found. It is then up to you whether or not you decide to act on the suggestion.
At the other end of the spectrum, some algo trading platforms automate the actual investment process. In other words, you won’t receive a signal, as the software will place buy and sell orders on your behalf. There’s also the opportunity to create your own algorithms at providers like Forex.com. However, this is only recommended for advanced traders and will require you to base your algorithm on your own algo trading strategies.
- Minimum Investment
Regardless of your chosen provider, all algo trading platforms ask you to meet a minimum deposit amount. Some providers allow you to get started for $200-$300, although you may need to deposit more to access all the features of the Algo trading robot. Other platforms, like World Markets, require a minimum of $1,500 for the trial account and $5,000 for the standard account.
- Fess and Commission Share
You will, of course, need to pay a fee of some sort to use a high-level algo trading system. In most cases, you will need to engage in a profit-sharing agreement. This is where the algo trading site will take a percentage of all its profits on your behalf.
For example, World Markets takes between 10% and 20% depending on what account type you are on. That said, automated mirror trading platforms often charge no fees.
- Maximum Drawdown
The maximum drawdown of an algo trading platform is an important statistic to understand. For those unaware, this is the most significant percentage drop the Algo bot has experienced to its peak value. For example, let’s say that the algo trader’s portfolio hits an all-time high in June. Suppose the algo trader portfolio had its worst month in July, losing 15%. This means that the maximum drawdown is 15%. In an ideal world, you’ll use an algo trading platform with a maximum drawdown of 10%.
- Withdrawal Policy
We would suggest avoiding algo trading platforms that have a minimum redemption period in place. This is where you must lock up your investment for some months before you can withdraw.
While providers do this to protect their positions, nothing is worse than being told you cannot access your money. We only recommend algo trading platforms allowing you to withdraw your funds anytime.
- Tradable Assets
You also need to have a firm understanding of what asset classes the algo trading bot specializes in. For example, while some platforms target the multi-trillion-dollar forex trading market, others focus on stock trading. Either way, you must ensure that you feel comfortable trading the financial instruments the algo bot exposes you to.
Conclusion
In summary, algo trading platforms allow you to automate the end-to-end investment process. This is ideal for those of you who have little to no knowledge of the financial markets but still want to get a look. Similarly, algo trading sites are also suited for traders that don’t have the required time to spend countless hours researching financial assets.
You simply need to open an account with your chosen provider, deposit some funds, and that’s it – the algo trading software takes care of the rest. That said, the vast bulk of the algo trading marketplace is dominated by scam artists.
FAQs
Algo trading refers to the process of buying and selling assets in an automated manner. The process is initiated by an algorithm that is backed by AI and machine learning.
With so many scam artists active in the space, knowing whether or not the algo trading platform is credible is tough. As such, you should stick with regulated platforms that offer demo accounts or a free trial.
Semi-automated algo trading platforms will perform the technical research process for you, and then send you a signal when it finds a trading opportunity. The signal will provide information as to what the algorithm has found, alongside the required entry and exit prices. You can then decide to act on the signal by placing the required trades.
In the vast majority of cases, algo trading bots will utilize day trading strategies. This means that they will look to enter and exit a trade on a short-term basis, constantly looking to scalp small but frequent profits.
Algo trading platforms cover heaps of asset classes. Whether its cryptocurrencies, forex, commodities, or stocks - there's likely an algo trading provider that covers it!
Algo trading strategies are the systems and patterns that software developers base their algorithms on. There are many different algo trading strategies, including trend-following strategies, arbitrage opportunities, mean reversion and strategies based on mathematical models. What is algo trading?
How do I know if an algo trading platform is worth investing in?
What is semi-automated algo trading?
What strategies do algo trading bots perform?
What markets do algo trading platforms invest in?
What are algo trading strategies?
