Algorithmic or Algo trading has long been in the trading tool
armoury of major financial institutions around the world. Often
referred to as Black Box trading, algorithmic trading facilitates
the buying and selling of large numbers of shares, futures or
amounts of currency that are split up into smaller order sizes and
bought or sold when specific market targets are reached or when
certain technical patterns are formed. The algorithms are often
very complex mathematical programmes that are back tested against
historical market data and then used to trade spot and forward
dated contracts in the market.
Recently retail clients have discovered ways to utilise these
very valuable automated trading tools and whilst they may not be
using systems that are quite as sophisticated as the banks and
proprietary trading houses, they are finding that automated systems
are providing a viable alternative to sitting in front of screens
all day waiting for a trading pattern to form so that a trade can
be placed. A number of software companies such as TradeStation,
Autochartist and Zignals are offering retail clients access to
automated trading systems that alert the trader when patterns are
formed and in some cases allow clients to specify how many lots,
shares or pounds per point they wish to stake when the markets
reach certain levels and then automatically execute the orders into
the market allowing traders to spend more time away from their
screens.
Algo or black box trading will always have a place in the
institutional world but is likely to become increasingly popular
with the retail client base as more and more part time and
professional traders look to use automated trading tools.