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Why are companies increasingly choosing trading algorithms?

Trading is a complicated process that requires time, attention and resources. While the gains that come from it is what convinces so many people to dedicate a huge part of their lives to trading, as the industry had gotten bigger and stronger the technology is being used a lot more not only simplify the process for the investors but also to save time money and resources, all of which were much needed to conduct any sort of trading and to see actual result because more than anything else the trading business favors those who stick around for long periods of time. 

Algorithms, on the other hand, are also making their way into our day to day lives and simplifies the process of any businesses and services. While algorithms, just like trading can sometimes be portrayed in the negative light, when it comes to doing the job fast algorithms are one of the most dependable, fast and reliable tools to ensure the quality of the services is consistent and good quality. So it only makes sense the algorithms are heavily used in the trading industry as well, to make the process more simple, requiring less time and effort directly from the investors. 

Algorithmic trading means conducting the regular trading procedures while using automated and preprogrammed trading instructions, that cover the variable like price, time and volume. Algorithms are programmed to execute a certain goal, by implementing small parts so fit from time to time to get to the desired destination. The system takes care of itself,n based on the preprogrammed information, executing purchases and other transactions according to the information available to it, leaving all the hard work out of the human’s to-do list. 

Challenges to the algorithm

Of-course a technology like this can’t be all positive and there are some downsides to consider when talking about the algorithms trading that can’t account for a person who is committed to trading can do with the knowledge and the context it has at the time. And while the human involvement is limited, the oversight is still necessary to ensure that in case of a glitch which can still happen and actually happens a lot with every industry uses algorithms. The system uses elaborate formulas with some mathematical models to create a dependable way of trading without needing constant tweaks and change from humans, but the oversight is important. Despite what it may seem like, using an algorithm for trading is not a brand new phenomenon and it actually has been around since the 1970’s originating in New York Stock Exchange and designed to route orders from traders to a specialist on the different floors. The algorithm evolved tremendously over the year allowing for less supervision and more freedom. It has taken trading a lot easier for some by offering the possibilities and skills that humans can’t possibly match. 

When it comes to speed its where the technology has an upper hand because it can perform the same operations 10 times faster compared to those performed by humans. It saves a lot of time when investors to trade via algorithms can use high-frequency trading technology which allows the algorithm to make tens of thousands of trades per second.  So depending on where you are in your trading journey using an algorithm could really help take your trading to the next level. 

There is no shortage of algorithmic trading companies these days and definitely not all of them are created equal. Some are pioneers in innovation and others just follow along. Here are the most innovative algorithmic trading companies that offer unique services and create new industry standards with each upgrade. 

Virtu Financial

This is one of the most famous providers of trading platforms and financial services and specializes in execution, liquidity sourcing, and multi-dealer platforms. The company was one of the first to implement proprietary technology to trade large volumes of securities. The company has been working in this direction for over a decade and has always had a strong commitment to using technology to the trader’s advantage. They have executed multiple important acquisitions all for technological gains and have previously worked with the likes of Silver Lake Partners, a tech-focused private equity firm and Investment Technology Group focusing on growing their technological possibilities and deliver the new and improved algorithms to conduct their business. It is one of the leaders in this industry and continues to improve the industry standard with each new acquisition is also among the top largest trading companies in the world.

Investing Haven 

Investing Haven is another company that operates using algorithms and while being relatively new it has set itself apart because of its contemporary approach to trading. Just this year they have announced their Mission 2026, promising their clients to turn 10k into a $1 million in under 7 years. This a campaign for the firm to reassure its customers that InvestingHaven is committed to improving its algorithm and technology and to deliver real-life results that their client can count on. The use of technology in trading is nothing new, actually, it is quite common but because of that when firms state that they use algorithm to trade it does not necessarily mean that it a good tool that will deliver good results Investing Haven is trying to prove their commitment to quality services by this campaign that is actually quite a bold statement that not a lot of firm would be brave enough to make. The commitment to making the algorithm as mistake-proof as possible is what sets successful firms apart from those who threw these worlds around without any real commitment to the results on their part.

Citadel LLC

This is another financial institution that has been doing tech trading since 1990. It was founded by Kenneth Griffin. The Citadel is an alternative asset management company that operates in North America, Asia, and Europe. The company manages trademark investment management technology and offers it to firms and funds worldwide. Citadel managed over $30 billion in capital and is one of the world’s largest asset managers. And ranks among the top ten hedge fund managers in the world. The company was the first hedge fund to complete yuan fundraising, allowing asset acquisition outside China for the local investors. The firm depends on its technology to conduct these massive transactions while keeping their quality in check, which is why the company has had a good reputation for years and will remain relevant in the future as well because they rely on technology and make sure that they are up to date on current innovations. 

Interactive brokers

This particular brokerage firm is based in the U.S. Interactive brokers is the largest electronic trading platform in America and they broker stocks, bonds, forex, and funds. Interactive Brokers used to operate under the tam Timber Hill in the beginning stages and around that time they were the first to introduce the fully automated algorithmic trading system that allowed them to create and submit orders to market via preprogrammed system. Thomas Peterffy who is the largest shareholder and the founder of the company, developed algorithms to figure out the best prices for options in order to use them on the trading floor. Over the years the algorithm improved and covered a different variety of transactions and services that the company was providing, establishing itself as one of the prime tech innovators in the financial industry that was using the algorithm to perfect their practice and to ensure the minimization of mistakes and risky trades using the original technology and algorithm. Interactive brokers offer the largest variety of services that are fully based on algorithms and have proven to be a very successful endeavor. While originally created as the market maker, it became heavily focused on tech-based trading paving the way for other similar firms. 

Can algorithms function without supervision?

Algorithmic trading is an essential part of the contemporary trading world. But it takes real commitment for the firms to actually make it beneficial for them. Just using algorithms isn’t a sign of a well rounded, successful company that should be trusted Actually some might be better off relying on personal efforts to deliver better results, considering the fact that it requires a level of professionalism and skill to create a technology that would work faster, need little supervision but also deliver good results be in tune with the needs of the market and free the person for having to keep track of it the whole time. Very rarely will you see a company that operates using this technology, and checks all the boxes mentioned above. While the technology will probably do a faster job on the market, the results will not necessarily be more beneficial. This is why elaborate technology that is done with the intricacies of the market in mind is so rare but so successful. Technology takes away a lot of tedious and boring work that humans can get fed up with really easy and take care of in it sometimes 1/10th of the time but it requires a lot of effort, supervision, and experience to make it profitable. While algorithms make way fewer mistakes than humans they are not immune to them completely. This is why the importance of good quality technology is crucial to actually see benefits from the faster performance and efficiency. Algorithms have the ability to create a lot of damage in case they are not properly wired, and can cause flash crashes and immediate loss of liquidity, things that are hard to recover from. This is why when choosing to work with a company that offers algorithm based trades its important to still approach it with the same caution you would regular broker and to keep in mind all the important but often overlooked qualities that one needs to look for ina tech-based trading services.

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Konstantin Rabin

Konstantin Rabin

Head of Marketing

Kontomatik

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Warsaw

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This post is from a series of posts in the group:

Financial Inclusion

The financial services industry has much to contribute to the UN and World Bank goal of full financial inclusion by 2020. This group will focus on industry contributions, ideas, barriers and enablers.


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