In a nutshell, algo trading (short for algorithmic trading) allows you to automate some, or all, of your online investment endeavours. The underlying technology is able to research the financial markets in an autonomous manner and then send signals or make trades on your behalf.
In this article, we explore the ins and outs of how algo trading works, review the best algorithmic trading platforms and provide some helpful information on how to choose the right platform for you.
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What is Algo Trading?
In its most basic form, algo trading refers to the process of automating 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 bitcoin robots focus exclusively on bitcoin trading, some algo trading platforms cover forex, stocks, crypto and commodities. Either way, the overarching concept is that algo trading takes away the need to perform your own technical analysis.
Once the algorithmic trading software finds a potential trading opportunity, it will then 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 come in the form of a trading signal, meaning that you will be provided with the required entry and exit orders.
This semi-automated strategy is great for those of you that want to alleviate the cumbersome process of spending hours researching the markets but still want an element of control over your trades.
For those of you 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 earn income in a passive manner, although there’s no guarantee that will happen.
Some online brokers, such as eToro, offer copy trading tools that allow you to copy the trades of other traders. While these are different from algo trading bots, they are still algo trading in the sense that 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 that the algo trading software is only as good as the person or people that created it.
Most algo trading platforms will then ask you to make a minimum deposit, which is typically in the region of $200-$300. This then gives you access to the algo trading bot and you will usually be able to modify the settings so that they 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.
If you are using a fully automated algorithmic trading platform, the provider will place buy and sell orders for you, allowing you to trade the financial markets without needing to lift 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 really possible to simply deposit a few hundred dollars into an algo trading platform and then earn ‘guaranteed’ income without needing to do any of the hard work?
The key problem is that many providers in the algo trading space are actually scam artists. They make hyperbole claims that they will never be able to realize. This is why it is so difficult to find a credible algo trading platform in the online arena.
With that being said, there are a select number of algo trading providers active in the space that do have a good track record. Such providers typically offer lower minimum deposits, demo accounts, or a money-back guarantee, so you are never 100% commitment 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 a number of regulated online brokers and trading platforms that offer forms of algo trading. We recommend going with such licensed providers, as this will ensure your account is protected and that your funds are kept securely in segregated accounts.
Pros & Cons of Algo Trading
The Best Algo Trading Platforms for 2020
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 a challenge. To help you out, picked out the best algo trading platforms for 2020.
1. eToro – Regulated Copy Trading Platform
eToro is slightly different from most algo trading providers in that it offers copy trading via its CopyTrader and CopyPortfolios tools.
The CopyTrader tool lets you mimic the portfolios and future trades of individual traders with the click of a button. CopyPortfolios take it a step further, as these are professionally managed portfolios by comprising a number of top traders and different markets to provide.
eToro CopyPortfolios make use of machine learning and AI to locate traders who are most likely to generate returns. It then uses an algorithm to determine these traders' sentiments and select the financial assets that make up the portfolio. You then simply invest your money and let eToro take care of the rest for you.
There's also eToroX, a cryptocurrency exchange that you can register for via your regular eToro account. This offers AlgoX, eToro's API Trading Programme, allowing you to build your own algorithms and autotrade cryptocurrencies.
eToro covers just about ever financial instrument you can think of and you can get started with a $200 deposit or trial the platform with the demo account. With PayPal support, a mobile app available and licenses in three jurisdictions, this is an all-round excellent algo trading platform.
- Algorithm-based copy trading
- FCA, ASIC & SySEC regulated
- Thousands of financial instruments
- Algo trading on eToroX crypto exchange
- $5,000 minimum for CopyPortfolios
2. IG – ProRealTime, MT4 and API Algo Trading
IG is a CFD and spread betting platform that allows you to trade over 17,000 markets, covering forex, crypto, stocks, commodities and more.
IG offers algo trading through its partnerships with the ProRealTime and MetaTrader 4 (MT4) platforms. ProRealTime is a leading web-charting package that offers over 100 indicators and allows you to build your own algorithms to execute 24 hours a day.
On MT4, you can auto trade forex according to your own algorithms or those created by the platforms's Expert Advisors. You can also algo trade on IG through its own native APIs (application programme interfaces), although these are intended for traders with experience in programming and coding.
In addition to integrated algo trading, IG offers a social community, interactive education and 24 your phone support. The fact that this platform allows you to use pre-made algorithms and make your own means it's a good choice for both beginners and more experienced traders.
- Use pre-made algorithms or build your own
- Choose between three algo trading platforms
- Wide range of financial markets
- High stock CFDs prices
3. Forex.com - Forex Algo Trading via REST API
Forex.com is a global forex trading specialist that lets you trade over 90 currency pairs at CFDs. The spreads are some of the highest on the markets, and you can also trade several other financial instruments, including cryptocurrencies and stocks.
Algo trading is available at this MT4 trading platform via Forex.com's REST (representational state transfer) API. This provides access to live streaming prices, advanced order types, over 180 markets and trade execution.
Using the REST API at Forex.com is complex and is recommended for traders that have experience in building algorithms. The advantage is that if you do, it allows you for customization than if you were to use pre-made algorithms.
- Build your own algorithms
- Over 90 forex pairs
- MT4 supported
- Limited customer support options
4. CFD Trader – Semi-Automated Algo Trading Software
CFD Trader allows you to fully automated the technical analysis process. The underlying technology will scan the financial markets on a 24/7 basis. This includes thousands of CFD markets, including but not limited to cryptocurrencies, forex, and gold. The software, which is backed by a powerful AI algorithm, will then send you a notification when it finds a trading opportunity.
You then have the option of acting on the suggestion. If you do, CFD Trader provides all of the required entry and exit data points so that you can place your orders with ease. In order to get started, you will need to fill out a quick registration form, and then make a minimum deposit of $250. Once you do, you will start receiving high-end trading signals.
- Algo trading software backed by powerful AI
- Scans thousands of markets 24/7
- Minimum investment just $250
- Unable to verify the bold claims made by the provider
5. World Markets - Fully Automated Algo Trading Platform
World Markets is a good option for those of you that are looking to automated the entire end-to-end investment process. The platform utilizes an AI bot which not only scans the financial markets on your behalf, but it places trades for you. The algorithm, which is powered by Microsoft AI, boasts a hugely impressive record in the space.
This includes 2019 profits of 718% and 2018 profits of 647%. In terms of the specifics, the AI Managed Account at World Markets comes with a 5,000 EUR minimum investment. To date, the platform has a maximum drawdown of 16.97%, The bot will engage in both long and short selling.
You also have the option of amplifying your potential returns with leverage of up to 1:50. In return for such high (claimed) gains, World Markets charges a performance fee of 10% or 20% - depending on the account type. Finally, you can get started with a debit or credit card, Skrill, WebMoney, bank wire, or cryptocurrency.
- 30-day trial account with a minimum deposit of €2,500
- Upfront about their revenue share model of 10-20%
- No mark-ups on spreads or pips
- Minimum investment on standard account is €5,000
Finding the Right Algo Trading Provider for you
There are literally hundreds, if not thousands of providers active in the online space offering algo trading products of some sort. As bold as some of the promises of guaranteed returns are, most of these are nothing but scams. With this in mind, it’s crucial that you research on providers before signing up.
To help you along the way, below you will find a list of considerations that you need to make prior to 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 which provider you decide to use, all algo trading platforms ask you to meet a minimum deposit amount. Some providers allow you to get started $200-$300, although you may need to deposit more in order 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 then $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 the vast majority of cases, you will need to engage in a profit-sharing agreement. This is where the algo trading site will take a percentage of all of the profits it makes on your behalf.
For example, World Markets takes between 10% and 20% depending on what account type you are on. With that said, automated mirror trading platforms like eToro charge no fees at all.
- Maximum Drawdown
The maximum drawdown of an algo trading platform is an important statistic to understand. For those unaware, this the largest percentage drop that algo bot has experienced, in relation to its peak value. For example, let’s say that the algo trader’s portfolio hits an all-time high in June 2020. Let’s then suppose that the algo trader portfolio has its worst month in July, where it loses 15%. This means that the maximum drawdown is 15%. In an ideal world, you’ll be using 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 are required to lock up your investment for a number of months before you can make a withdrawal.
While providers do this to protect their positions, there is nothing worst than being told you cannot access your own money. We only recommend algo trading platforms that allow you to withdraw your funds at any given time.
- 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 will look to target the multi-trillion-dollar forex trading market, others focus on stock trading. Either way, you need to ensure that you feel comfortable trading the financial instruments that the algo bot is giving you exposure to.
In summary, algo trading platforms allow you to automate the end-to-end investment process. This is ideal for those of you that have little to no knowledge how the financial markets work but still want to get a look in. 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. With that being said, the vast bulk of the algo trading marketplace is dominated by scam artists. That’s why we recommend going with a regulated broker that provides algo trading, such as eToro.
eToro: Algo Trading via CopyPortfolios
- Algorithm-based copy trading tools
- Wide range of financial instruments
- FCA, CySEC and ASIC regulated
What is algo trading?
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.
How do I know if an algo trading platform is worth investing in?
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.
What is semi-automated algo trading?
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.
What strategies do algo trading bots perform?
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.
What markets do algo trading platforms invest in?
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!
What are algo trading strategies?
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.