Exploring Algorithmic Trading: Fundamentals, Benefits, and Usage on ETNA Platforms

Change is the only constant in today’s world. Technology is evolving, and so are financial markets. Algorithmic trading, mathematical models, and high-speed computers are some of the newest technology advancements that enable accurate and efficient trade execution based on your investing objectives and approach.

This post will discuss algorithmic trading benefits and strategies and how to place “Algo Orders” on ETNA platforms.

The Rapid Growth of Algorithmic Trading

Algorithmic trading gives investors—from large institutional players to lone traders—the ability to take advantage of momentary market opportunities and tailor their approaches in a manner that is just not possible given human response rates.

According to recent market research, the global algorithmic trading industry reached a value of USD 15.6 billion in 2023. Furthermore, industry projections indicate that this market is expected to grow at a strong annual rate of 10% from 2024 to 2032, reaching USD 37.6 billion by 2032. This upward trend reflects the increasing integration and adoption of automated trading systems in the financial industry.

The Strengths of Algorithmic Trading

Algorithmic trading will give you superpowers to help you achieve your objective more quickly and will simplify your investing path.

High Order Processing Speed
High-speed computers use mathematical models to process your order requirements and market data. They execute trades instantly when they correspond to your requirements, often getting the best stock prices on the market.

Trading Precision
Emotions influence humans. Humans make irrational decisions. In contrast, algorithms conduct transactions using predetermined standards and market data, removing human mistakes and emotional bias.

Lower Stock Prices
Algorithms analyze market data in real-time. They monitor prices and volumes and notice every little price movement. As soon as a favorable price appears, the algorithm instantly executes an order, catching the best price.

Continuous Algorithm Optimization
Developers are fine-tuning algorithms using the backtesting method. They mimic the strategy’s performance under previous market situations using historical market data, price changes, and trading volumes. Testing allows developers to evaluate an algorithm’s performance and identify its strengths and weaknesses for further optimization.

Selecting Algorithms and Strategic Planning

Before choosing an algorithm, define your trading goals.

Consider the following:

• How much do you have to invest?
• What is your investment strategy?
• Do you need short-term profits, or is it a long-term investment?
• How much risk are you willing to take?
• What returns are you aiming for?

If you’re new to trading, consider seeking advice from the broker.

After answering those questions, familiarize yourself with supported trading algorithms:

• MINT – Minimum Time Execution – This algorithm fulfills orders with minimal market impact.
• VWAP – Volume Weighted Average Price – This algorithm aims to minimize the market impact and achieve an average execution price close to the VWAP for the trading day.
• TWAP – Time Weighted Average Price – This algorithm reduces the impact of large orders on the financial market. It achieves an average execution price close to the TWAP for the specified period.
• SENS – Sensitive Execution – This algorithm adjusts its approach based on real-time market conditions to minimize the impact on the stock’s price and achieve a better execution price.
• DPOV (POV)—Volume Participation—This algorithm executes trades proportionately to the market’s trading volume, ensuring the order’s minimum market impact.
• STLTH – Stealth Execution – This algorithm executes large orders, concealing the actual size of the order from the market.
• IMSF—Implementation Shortfall—This algorithm achieves the best execution price by minimizing slippage and other trade costs.
• SPEG –Synthetic Peg – This algorithm is designed to achieve better execution prices by dynamically adjusting the order price in response to market conditions.
• SMART SOR – Smart Order Routing – This algorithm routes orders to the venue that best meets order requirements: price, liquidity, speed, and cost across multiple trading venues.
• SMART DARK – This algorithm routes orders to dark pools and private trading venues where the order book is not visible to the public.
• SMART MOC – Market-on-Close – This algorithm executes orders as close to the closing price.
• Custom – This algorithm lets traders configure parameters like start/end times, minimum quantity, maximum floor, trading urgency, and specific price triggers to achieve their trading goals.

How to Start Placing Algorithmic Orders on ETNA Platforms

To offer algorithmic trading, we have partnered with Citadel and SpeedRoute execution venues. To integrate the venue, please get in touch with our support team.

Opening a Trade Ticket with Algo Trading
We’ve detailed how to place an algo order in our Trading Algorithms documentation, but here’s a quick overview:

To place an algo order, open a new trade ticket. There will be a “Trading Algo” field.

Click on it to select a specific trading algorithm.

When you select an algorithm within a trade ticket, a pop-up window appears where you should specify algorithm parameters.

We described algorithm parameters in detail in our Trading Algorithms documentation.

When you click “OK,” the platform places a new order; you can find it in your orders on the BO dashboard.

Embracing the Future with ETNA

Algorithmic trading blends advanced technology with traditional investment strategies, and ETNA is at the forefront of this evolution. With a variety of algorithms, from VWAP to custom solutions, ETNA makes sophisticated trading accessible to everyone. The platform’s intuitive interface ensures that both institutional and individual traders can efficiently place algo orders, achieving precision and speed. By using ETNA’s capabilities, traders can stay adaptable in a changing market environment and explore new growth opportunities.