How to Choose an Automated Trading Platform?

How to Select Right Automated Trading Platform?

By Apoorva Singh

When going for automated trading platform it is very important to look for some important features before you decide on the automated trading platform you want to trade on. Different automated trading platforms offer different services which have their own pros and cons and might suit certain strategies and (remove the word “and”) better than the others. We have discussed important features that you should consider while choosing an algorithmic trading platform.

Backtesting

A backtest is a historical simulation of an algorithmic trading strategy to see how it would’ve performed on the data in the past. Backtest results usually show the strategy’s performance in terms of profits and losses and some popular performance statistics like Sharpe Ratio or Information ratio which help to quantify the strategy’s return on risk (remove the word “return on risk” and replace it with “risk-adjusted returns”). Hence a good backtesting software can be a great plus for an automated trading platform. Backtests can be divided into two categories ‘Research Backtesters’ and ‘Event-Driven Backtesting’.

Programming Languages

Choice of programming language is very important while deciding which platform to use for automating your trading strategy. Different languages have different pros and cons. Most commonly used programming languages used for algorithmic trading are C++, C#, Java, R, Python, and MATLAB. You can refer to one of our recent posts on top backtesting platforms where we’ve discussed popular programming languages.

Data

Different automated trading platforms provide access to/support trading/backtesting of certain securities only; some provide specific access to data feeds like Bloomberg, Thomson/Reuters. For instance, there are platforms dedicated to Forex trading or Equities trading only that too in specific markets. You need to make sure what the automated trading platform offers and then decide based on your needs. The frequency of data that you would need should also be taken into account. Some strategies would require daily EOD data while some other strategies might require intraday trading data.

Web Based Platform

Some automated trading platforms also provide the web-based platform for online trading and backtesting which makes it easy and convenient to access your trading platform anywhere. The web-based platform may have less number of features compared to the desktop trading platform.

Complexity

Different automated stock (remove the word “stock”) trading platforms vary in ease of use. Some platforms may require actual programming expertise while others may not. Most platforms provide a demo version which can help you decide what fits your comfort level. The complexity of platforms can be different for different assets traded, and one should check the different tools & features available to analyze the specific asset class.

Number of Strategies Allowed

Sometimes there might be restrictions on the number of long or short strategies loaded on a particular account and you might need extra accounts for more strategies. You should also check if you’ve enough memory on your computer for multiple accounts if required as it can be memory intensive. Some platforms also offer their own trading strategies as add-ons which can be subscribed by paying periodic or one-time fee.

Commissions/Costs

Trading commissions can impact your profits to a great extent. Carefully choose the plan which suits your trading requirements. Also, check if there is an initial and/or monthly fees and what is offered against it to make sure you only paying for services you actually want.

Technical Support & Customer Service

Algorithmic (remove the word “Algorithmic” and replace it with “Automated”) Trading platforms are expected to have an extremely high “up-time” and rarely go out of service. Before choosing the platform you should check the history of outages and if there have been any other issues in the past then how soon were those resolved and how knowledgeable and helpful was the support team.

Next Step

If you’re a retail trader or a tech professional who want to learn automated trading, start learning automated trading today! Reads on basic concepts like automated trading architecturemarket microstructurestrategy backtesting system and order management system will be helpful.

 

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