55. How to Become an Algorithmic Trader

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If you want to grow your career as a professional algorithmic trader, let’s explore the essentials below.

1. In-Depth Financial Knowledge

You’ll need in-depth knowledge of the financial markets as well as an understanding of legal structures, taxes, and applicable fees. It will be challenging to just rely on volume and price data without knowing anything about the market. Algorithmic trading requires lots of effort to customize the system according to your needs. Algorithmic trading is more suitable for those who already can make consistent profits with traditional methods.

Estimated percentage of traders with in-depth financial knowledge: 5%.

2.  Software Development Skills

You need to have data skills, such as data collection, data cleaning, and data management. Furthermore, system  optimization and server management with high programming skills are critical to building an algorithmic trading system. The more developed the market is, the easier it is to accomplish this.

Note that the system development skills require building an entire system from scratch without third-party software like AmiBroker, MetaTrader, or TradingView.

Estimated percentage of traders with technical backgrounds among the remaining traders: 3%.

3. Motivation

Being a software engineer with in-depth financial knowledge is necessary but may be insufficient. You’ll need personal motivation to start and realize the project. There will be distractions like family, health, time, or other life interests.

Estimated percentage of traders with motivation among the remaining traders: 25%.

4.  Investment Capital

Investment capital is required to start an algorithmic trading career. Without initial capital, algorithmic traders may not earn enough to cover living costs. In Vietnam, the estimated minimum capital is 3.75 billion VND (around US$160,000) while it would be US$700,000 in the US.

Assume the expected return in Vietnam from algorithmic trading is 15% per annum. The basic living cost is 25 million VND a month, or 300 million VND a year, with an estimated inflation of 7%. The minimum starting capital is:

0.3 ÷ (15% - 7%) = 3.75 billion VND

A similar calculation applies to the US with the following estimates: inflation at 2%, expected return at 12%, and basic living cost at US$70,000. The minimal starting capital is then:

70.000 ÷ (12% - 2%) = US$700.000

These numbers are not a significant investment, but for an individual, they are not small either.

Estimated percentage of traders with sufficient investment capital among the remaining traders: 10%.

5. Long-Term Profit

An algorithmic trader needs to make profits in the long run, not just in the short term. Many algorithms do lose their edge over time and need to be adjusted or replaced. Thus, algorithmic traders need to keep researching and developing new algorithms.

Estimated percentage of traders with sufficient long-term profits among the remaining traders: 35%.

6.  No Stability Required

Investors need to be comfortable with uncertainty and randomness. It’s challenging to predict the profits in just a month. Without the right mindset, investors may not have enough patience during difficult times. Not everyone with the right tools is ready to become an algorithmic trader.

Estimated percentage of traders with the right mindset among the remaining traders: 50%.

7. Choosing Algorithmic Trading as a Career

This criterion is quite tricky. Investors may have all skills and qualities to be algorithmic traders, but they may have many other opportunities from large corporations. Will they pick algorithmic trading if they have other career options? Some will, and some won’t.

Estimated percentage of traders who would stick to algorithmic trading: 20%.

Estimated Number of Algorithmic Traders in Vietnam

Let’s make a rough estimate of how many algorithmic traders there are in Vietnam. Assume there are 2.5 million individual traders, which is roughly half of the 4.93 million brokerage accounts in Vietnam as of August 2022:

2.500.000 × 5% × 3% × 25% × 10% × 35% × 50% × 20% ≈ 3

Our estimate is that there are only 03 professional individual algorithmic traders in Vietnam or one algorithmic trader for every one million individual traders in Vietnam.

Worldwide, with a population of 7.75 billion, let’s assume 5% trades in the financial markets, which results in 387.5 million individuals. There would be around 387 algorithm traders globally.

Therefore, it can be seen that if one wants to pursue a career in algorithmic trading, it’s important to combine the professional skills of many excellent individuals.