Site icon Galaxy99

Beginner’s Guide: Basics Of Forex Algorithmic Trading

trading

Forex is one of the biggest trading markets in the world and has been around for quite some time. Trades back then took place on the telephone where a trader and dealer worked out the exchange. So before, rates and market movements were unable to be monitored by the trader and information about the market was solely from the dealer.

But thanks to technological advances, the Forex market has been 100% more efficient today. Today’s traders may do research on market trends and execute trades using mobile phones, PCs, and any other device with an internet connection.

Not only that, the way of trading has advanced as well where traders can use analytical trading strategies to help them accurately speculate the market’s movements. This is called algorithmic trading.

To know more about algorithmic trading, check out everything there is to know about it down below!

What Is Algorithmic Trading In Forex?

Based on the term ‘algorithm’, this kind of trading uses a predetermined set of rules. This is an automated trading strategy that utilises a computer program to trade currency around the world based on price, time and quantity. This is a strategy is used when conducting Forex trading exchanges.

Traders who use this method of trading are called algo traders and although this kind of trading seems simple, it’s actually difficult to set up and maintain. These traders have to carry out extensive market research to identify potential trading advantages, develop algorithms to exploit those advantages, backtest trading techniques to ensure their viability and then start trading operations.

Algorithmic trading has around 4 main kinds of trading such as direct market access, auto-hedging, statistical trading and algorithmic execution. Each of these trading methods holds its own set of functions and processes. To understand how all 4 work, here’s a rundown of each one:

How Do I Start Algo Trading In Forex?

Now that you know what algorithmic trading is, you can now learn how to start. Forex trading can be quite volatile so it’s best to stick to a strategy you know and works best for you. The are only 4 main and basic steps to start algo trading and here’s a guide:

Come Up With A Strategy

Before trading, come up with a strong strategy. A strategy is like a gun you take to war, and everyone knows, you can’t go to war without a weapon. A trader’s strategy also has something to do with most winnings and losses.

Turn It Into An Algorithm

Once you’ve come up with a strategy, it’s now time to turn it into an algorithm. To do so, you have to get it automated and then wait for it to get approved by authorities. Once the exchange and other regulatory bodies have approved the strategy, it is safe to put it into practice.

Make Or Get An Advanced Trading Software

Having an advanced trading software, when Forex trading, is something an algo trader must have. You can either choose to make one or get on.

Now Trade!

After the 3 first steps, you can now start trading! All you have to do is wait for the trading signal to generate and act on it by making an action to either buy, sell or hold.

What Are The Pros And Cons Of Algo Trading?

Of course, any kind of trading strategy comes with its own set of benefits and disadvantages. So before your start your Forex trading journey, you first have to know if algo trading is for you, here’s a list of its pros and cons:

Pros Of Algo Trading

Cons Of Algo Trading

Exit mobile version