Algorithmic Trading: What Is It?

Algorithmic Trading: What Is It?

Imagine, around one century ago there were no computers or digital devices. Traders made notes of their trades on paper and had to make phone calls to their brokers to open a position. Everything changed in the 1970-the 1980s, during the computerization era. Now, forty years later, we are not only able to execute trades in a matter of seconds, but we also can build a system operating instead of us. Today, we will introduce you to the complicated yet interesting world of algorithmic trading (also known as automated trading, quantitative trading, or algo trading). Since algo trading may seem a bit scary for a beginner, we are going to carefully guide you through the process of understanding what it is.

Introduction

In general, the term “algorithmic trading” stands for trading with a system that operates on a pre-programmed set of rules (algorithm). Let’s pretend you have bought a Japanese robot that does everything you ask him to. There is only one difficulty – you need to learn Japanese to give commands to this robot. In algo trading, everything works the same. You can make an algorithm that opens as many trades as you want to. However, you need to learn how to build this algorithm first.

Algo trading - trading with a system that operates on a pre-programmed set of rules (algorithm).

1.png

There are two types of algo trading. The first one, which is mostly used by big investment funds, is called high-frequency trading (HFT).  Companies use super-powerful computers to execute a large number of orders within a second. There is a lot of criticism towards HFT, as it does not involve human decisions. High-frequency trading used by big institutional players is also a reason for huge, unexpected moves in the market.

The second type of algo trading is low-frequency trading. It is based on programming skills and experience in technical and fundamental analysis. As regular traders with the MetaTrader 5 software, who want to automatize their trades, we will focus on this type of algo trading.

2.png

Where did algo trading come from?

The history of algo trading began 50 years ago when the “designated order turnaround” system (DOT) was implemented in the New York Stock Exchange. It allowed sending electronic orders to the trading post. The infamous Bloomberg terminal computer invention at the beginning of the 1980s was another massive step towards algo trading's development.

However, the crucial point was the decimalization in the US which changed the minimum tick size to $0.01 per share. Therefore, smaller differences between the bid and ask prices were allowed. In 1998 the US Securities and Exchange Commission gave a green light to electronic exchanges. This is when high-frequency trading was born. As technologies have been rapidly developing, new, faster hardware allowed programmers to write algorithms that gave computers an ability to decide the pricing and the number of trades on a pre-identified set of rules. Now, you can even learn a programming language for financial data analysis.

Languages for algo trading

You can choose between different programming languages for algo trading purposes. Typically, algorithmic traders choose between Python, C++, Java, C#, or R. In Forex, however, there are special types of languages that exist in the MetaTrader environment. They are MQL4 for MetaTrader 4 and MQL5 for MetaTrader 5. Despite being known as a modified version of MQL4, MQL5 is more flexible. The reason for that lies in the language syntax that is very close to C++. It allows programmers to use more options for developing trading robots. 

In our course, we will focus on the development of trading robots using the MQL5 language. Why?

Firstly, because MetaTrader 5 gives access to trading more instruments. That is, you can use trading robots on stocks, metals, currencies, etc.

Secondly, MQL5 is very close to C++. Learning MQL5 will give you a broader understanding of programming basics.

Thirdly, MQL5 has its integrated development environment MQL5 IDE, where all trading applications are developed. Thus, you don’t need to download another software to do that.

Finally, there is a big code base for MQL5 programmers to find robots and share ideas.

3.png

Remember that the documentation for this language is available on the official MQL5 website.

Why should you learn MQL5?

If you trade in MetaTrader 5, experience in the specialized integrated development environment (IDE) MQL5 will help you create your indicators, trading robots, and modifying existing ones. It will help you to automatize your trading decisions and boost their effectiveness. 

This is the first lesson of our algo trading guide. Stay tuned and find out more about how to create a trading robot in the next lessons! 

Frequently asked questions

  • How to open an FBS account?

    Click the ‘Open account’ button on our website and proceed to the Personal Area. Before you can start trading, pass a profile verification. Confirm your email and phone number, get your ID verified. This procedure guarantees the safety of your funds and identity. Once you are done with all the checks, go to the preferred trading platform, and start trading. 

  • How to withdraw the money you earned with FBS?

    The procedure is very straightforward.  Go to the Withdrawal page on the website or the Finances section of the FBS Personal Area and access Withdrawal. You can get the earned money via the same payment system that you used for depositing. In case you funded the account via various methods, withdraw your profit via the same methods in the ratio according to the deposited sums.

  • How to start trading?

    If you are 18+ years old, you can join FBS and begin your FX journey. To trade, you need a brokerage account and sufficient knowledge on how assets behave in the financial markets. Start with studying the basics with our free educational materials and creating an FBS account. You may want to test the environment with virtual money with a Demo account. Once you are ready, enter the real market and trade to succeed.

  • How to activate Level Up Bonus?

    Open Level Up Bonus account in web or mobile version of FBS Personal Area and get up to $140 free to your account.

Latest news

What will move the market on October 25-29?

Last week was full of surprises! Stock indices have shown significant growth…

Will USD Stop Falling Today? Market Wrap

The US dollar is heading to close the seventh day in the red as it remains under selling pressure. The US data at 15:30 GMT+3 (jobless claims and Philly Fed Manufacturing Index) may support the greenback if it's strong. 

Major Event Alert: Canadian Retail Sales

Canada will publish the Retail Sales and Core Retail Sales on October 22, at 15:30 MT time (GMT+3).

Deposit with your local payment systems

Be on top of your game

Data collection notice

FBS maintains a record of your data to run this website. By pressing the “Accept” button, you agree to our Privacy policy.

Follow us on Facebook

Callback

A manager will call you shortly.

Change number

Your request is accepted.

A manager will call you shortly.

Next callback request for this phone number
will be available in

If you have an urgent issue please contact us via
Live chat

Internal error. Please try again later

Don’t waste your time – keep track of how NFP affects the US dollar and profit!

You are using an older version of your browser.

Update it to the latest version or try another one for a safer, more comfortable and productive trading experience.

Safari Chrome Firefox Opera