54. Is Algorithmic Trading Preferable for All Traders

Published at 1649769762.431

In the future, algorithmic trading will dominate the Vietnamese market. However, it will be accessible only to a few investors or institutions. It’s still not a tool for the mass market. The following are some types of investors or institutions that can benefit from algorithm trading.

Investment Funds or Proprietary Trading Firms With Large and Frequent Trading Volumes

Investment funds and proprietary trading firms need to execute their investment decisions efficiently and effectively. They face many challenges such as staff costs, management, and most importantly price slippage. An algorithmic trading system will yield similar returns with minimal operating costs.

For example, Dragon Capital needs to sell 50 million HPG stocks and buy 20 million FPT in the Vietnamese market. This task may require several weeks for a trading team to complete. With an algorithmic trading system, a fund manager only needs to input the desired outcome and the system will handle the rest, while providing real-time updates. Moreover, an automated trading system can work on more than 100 stocks simultaneously, which is impossible for human traders.

Index ETFs

Index ETFs follow mathematical formulas to adjust their portfolios constantly to ensure their performance follows the tracking index. This task can be done daily by an algorithmic trading system in the whole market. It can calculate the buy/sell volumes and prices to place orders and generate reports.

Professional Investors With Established Investment Methods

Professional investors have developed their own investment methods. These methods can bring profits to their clients or themselves. They can automate their decision-making and trading processes by using an algorithmic system. The main difference between professional investors and new investors is that they have a stable investment formula that can be programmed, thus leveraging the power of algorithmic trading.

At ALGOTRADE, we use algorithmic trading to rebalance our portfolio by scanning the financial statements of more than 1,600 listed companies. The process usually takes several hours.

Mathematical or Risk Management Experts

Math and risk management experts may already have profitable investment strategies. However, they cannot execute them manually. Some examples that involve math are scalping or pair trading. These algorithms require continuous order placement and cancellation, which can only be done via an algorithmic trading system.

At ALGOTRADE, we use our algorithmic trading system to trade thousands of futures contracts every day with optimal capital allocation.

Algorithmic Trading Systems Are Not for Everyone

New investors without a clear and sustainable investment method may be disappointed by the actual results of an algorithmic system when trying to automate their investment through technical analysis models or indicators. They may be looking for the holy grail to get rich every day but they likely overlook the flaws in backtesting or the costs involved in real trading. These investors should start small and gradually improve their skills. Poor trading performance often comes from unreliable backtesting results or inaccurate cost estimation.