Algorithmic trading is a novel approach that removes the emotional aspect of trading that typically weighs on the performance of even the most experienced players. This approach uses technology and advanced artificial intelligence features to identify potential trading signals while bots can be set up to open and close trades automatically by following the parameters defined by the human user.
In case you would like to know more about how algorithmic trading works and how you can get started, the following is a review of the algorithmic trading platforms UK based traders can create an account with.
In This Guide
The following is a algorithmic trading platforms for UK residents:
In the following section, we take a closer look at what each of them has to offer so you can pick the one that suits your particular algorithmic trading strategy.
eToro is a global brokerage firm that serves over 12 million users from different latitudes. Its portfolio of available instruments is one of the amplest in the industry and includes stocks indexes and individual stocks from dozens of different exchanges along with cryptocurrencies like Bitcoin; commodities, and exchange-traded funds (ETFs).
Even though eToro is not a pure-play algorithmic trading platform, this broker does have a feature that functions as an automated trading service. The Copy Trading and Copy Portfolios features enable eToro users to build a portfolio that mimics that of other users within the platform for free.
Copying another user’s portfolio is very easy and it can be done within seconds. Moreover, eToro users can choose how much of their account balance they would like to place in that particular portfolio and the system will automatically execute the trades required to build it – pretty much as an algorithmic trading system would.
Users can either copy a person’s portfolio or they can invest in portfolios that follow a specific trading strategy such as dividend, growth, value, or commodity investing.
A risk score will be displayed for each of the available options and users can also research more about the historical performance of the portfolio, its composition, and strategy along with the number of investors that have copied it.
68% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you can afford to take the high risk of losing your money.
Capital.com is a UK-based CFD trading platform that has made available for users an integration with Meta Trader 4 – one of the most popular algorithmic trading software in the world. MT4 offers desktop, mobile, and web-based versions for multiple operating systems for its systems to download install.
Upon registering with Capital.com, users will have the chance to create or sign in for an MT4 account once logged into the trading platform and the MT4 interface will automatically connect with that of Capital so users can start executing trades.
The MetaTrader 4 interface comes with 85 pre-installed indicators that can be used to identify trading signals while the Expert Advisors feature will enable users to follow algorithmic trading strategies.
The Capital.com platform is one of the few that offers CFD contracts of UK-listed equities and that makes it one choice for investors who would like to get exposure to the British stock market.
Moreover, the platform supports multiple other non-UK instruments and financial asset classes including commodities, cryptocurrencies (such as Ethereum), and global stock indexes. A minimum deposit of $20 is required to open an account with this provider for UK residents.
79.17% of retail investor accounts lose money when trading CFDs with this provider.
Libertex is a CFD-only broker that supports algorithmic trading via MetaTrader 5. Same as with Capital.com, users will have to first register with this provider to then connect their MT5 account so trades can be executed via the Libertex trading platform.
For professional clients, Libertex offers up to 500:1 leverage ratios and bid/ask spreads charged by this provider can be as low as zero for a selected group of financial instruments.
Algorithmic trading is entirely possible with Libertex and the enhanced MQL5 code that powers the MT5 platform includes the possibility of using advanced signals, the creation of bots, and other similar features.
The MT5 platform has a desktop version for Windows and mobile versions for both iOS and Android along with its web-based version.
A minimum deposit of $50 is required to open an account with this provider and dozens of financial instruments are supported by its platform including a limited selection of forex pairs, cryptocurrencies, stocks, and commodities.
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 74% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
AvaTrade offers multiple alternatives to execute algorithmic trading strategies including MetaTrader 5 algo trading and copy trading via DupliTrade and ZuluTrade.
To integrate Meta Trader 5 with the AvaTrade platform users will have to register with this provider to then connect their account with an MT5 account.
Meanwhile, for the DupliTrade feature, a minimum deposit of $2,000 is required to gain access to the portfolios of hundreds of strategy providers. Trades are executed automatically once a portfolio has been selected.
A similar platform called ZuluTrade is also supported by AvaTrade. The minimum deposit to access this platform is lower (£500) and there are more than 10,000 traders whose portfolios can be copied.
AvaTrade offers access to a wide range of financial instruments via Contracts for Differences (CFD) including commodities, cryptocurrencies, stock indexes, and forex. A minimum deposit of $100 is required to open an account with this provider for credit and debit card deposits.
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IG is a UK-based broker that offers the possibility of engaging in algorithmic trading via its partnership with ProRealTime and MetaTrader 4 or by using its native API. Upon registering with the platform, users can connect their IG account with that of any of these two providers or a proprietary software could also be connected via this broker’s native API to execute trades automatically by following a specific algorithmic trading strategy.
ProRealTime is one of the most well-known algorithmic trading software tools in the world. It supports backtests going back more than 30 years and multiple technical analysis tools including a trend screener (ProRealTrend) and custom indicators.
Meanwhile, MetaTrader 4 is one of the most popular algorithmic trading software and, upon registering with IG, traders will get free access to 18 indicators and add-ons.
IG offers a wide range of Contracts for Difference (CFDs) covering a large number of financial asset classes including stocks, commodities, cryptocurrencies, and stock indexes and, for UK residents, no minimum deposit is required to open an account with this provider.
Your capital is at risk.
In this section, we’ll provide further details about how algorithmic trading works in practice, which strategies are the most commonly followed, and some other relevant matters about this approach.
Algorithmic trading consists of using programmed bots and other similar software to execute trades upon identifying pre-defined trading signals or following certain parameters established by the human user.
Different types of algorithmic trading programs and software can be used to engage in algorithmic trading. The following is a summary of the most popular ones.
A bot is a program that is designed to execute trades automatically following a set of parameters established by the human trader. These parameters include, among many others, some of the following variables:
The benefit of a bot is that they can execute traders objectively by following a certain strategy and this removes the psychological and emotional side of trading that often weighs on the performance of even the most experienced players.
Alert bots (semi-automated)
Another approach to algorithmic trading that involves a degree of human intervention is the use of alert bots. An alert bot is constantly scanning the market for trading signals following the parameters established by its human user.
Every time the alert bot identifies a setup or a signal that matches these parameters, a notification will be sent to the user so he can make the final decision on whether or not to open a position in the instrument.
These alerts could be related to price action signals (trend line breaks, support and resistance breaks, volume spikes) or to more complex indicators such as the MACD, Relative Strength Index (RSI), and simple moving averages.
Even though signals are intimately involved with the use of automated bots, algo trading strategies could also rely on external or third-party signals that are not necessarily related to a certain technical setup.
One example of this would be to trade a certain index once an important economic report comes out if the report misses the consensus estimate. Moreover, trading signals could also come from Level II market data such as bid/ask spreads, buy and sell order volumes, and other similar variables.
In essence, anything that has the power to move the price of a particular financial instrument can be considered a variable to trade on and the signal would be an event in which the variable changes in a way that the price will be directionally influenced by the said change.
There are also third-party services that provide signals for algorithmic trading purposes. These can come in the form of a newsletter, RSS feed, or even a Telegram message. The signal will be received and processed by the bot to execute a transaction accordingly.
Copy-trading features are automated for the copier – not for the source. Therefore, they can be considered a form of algorithmic trading as a copy portfolio will be adjusted immediately once the source portfolio is modified.
Certain platforms have launched copy trading services that facilitate the process of building a portfolio for beginners who may prefer to rely on the experience of more seasoned market participants rather than operating on their own.
Platform-based Algo Trading
Certain brokerage firms have introduced proprietary trading signals services, bots for algorithmic trading, and alert bots to lure traders who prefer to have everything in one place rather than having to rely on the services of multiple parties to execute their algo trading strategy.
One example of this is the algorithmic trading feature offered by IG, which is brought forward through a partnership with ProRealTime and MetaTrader 4. These programs use an API integration with IG’s proprietary trading platform to provide a hassle-free algorithmic trading service.
Knowing how to use a bot is the first step to engage in algorithmic trading. After an algorithmic trading software or platform has been selected, the trader must establish the parameters that the bot will follow to either issue an alert or execute a set of transactions. These are some of the most common strategies that can be implemented to engage in algorithmic trading.
Arbitrage is an activity that takes advantage of small temporary differences in the price of an asset between different brokers at the same time. Arbitrageurs profit from buying the asset on the broker that has the lowest ask price to then sell it at a profit on another broker that offers a higher bid price.
This algorithmic trading strategy is mostly successful for illiquid securities as their bid/ask spreads tend to be wider and that increases the chances of identifying potential arbitrage opportunities.
One example of arbitrage would involve:
An arbitrage algorithmic strategy can be used for forex algorithmic trading or Bitcoin algorithmic trading. In particular, this latter asset tends to be a frequent target of arbitrageurs amid the high number of cryptocurrency exchanges that are now available.
Signal trading involves scanning and identifying certain trading signals that are established by the human trader as a parameter for the bot to execute when spotted. Signals can either be identified upon performing a technical analysis of multiple instruments or they can be sourced from a third-party service that is constantly surveying the market to spot these setups.
When it comes to technical analysis, signals can be derived from the use of price action or volume-derived indicators like the accumulation/distribution chart, Relative Strength Index (RSI), MACD, and Bollinger Bands.
Price action trading
Price action trading is an approach that involves assessing potential bullish and bearish technical setups upon scanning multiple different financial instruments.
These price action setups include:
Some algorithmic trading platforms include a pattern scanner. In some cases, human traders could rely on these scanners to identify setups that, once confirmed, can be considered a trading signal.
As with any trading or investment strategy, the performance of an algorithmic trading strategy will be determined by the win rate of the trading system, the reward-to-risk rate of each individual trade, and the implementation of adequate risk management procedures.
An example of this would be a strategy that has a 50% win rate. In that case, the reward-to-risk ratio must be in all instances at least 1.5 to guarantee that the positive results earned on winning trades will outpace the losses caused by the losing half.
Therefore, beating or not the market is not determined by the platform used as the system followed by the trader plays a more important role in achieving this particular objective.
It is important to note that setting realistic expectations is also crucial for a successful algorithmic trading strategy to work. Considering the risks assumed, this approach should yield at least twice the return that a passively-managed index fund would in a relatively similar period.
Algorithmic trading may sound complex at first glance but, in essence, it is a way to implement or try out a certain trading system as it takes the emotional side of trading. The platforms we have reviewed above support this method of trading and often offer a free demo account.
As with any other activity, there might be a learning curve but once you are more familiar with how the software works it will be possible to test multiple strategies at the same time.
Algorithmic trading involves the use of programmable software and systems to execute transactions following a set of pre-defined parameters.
There are different types of algo trading software including automated bots, alert bots, and signal trading. Their goal is to either execute trades automatically without the involvement of a human or alert the human operator once a trading signal has been spotted.
The profitability of this activity depends on how effective the trading system is. If the trading system has a high win rate and exit prices are high enough to offset losses, algorithmic trading can be quite profitable.
The first step to engage with algorithmic trading is to establish which strategies will be tested. Once these strategies are determined, a bot can be set up to either execute trades once a trading signal has been spotted or to alert the user about the existence of a trading opportunity.
We have reviewed multiple algorithmic trading platforms in this article. We encourage you to read all the reviews so you can pick the one that suits your preferences and approach.
Alan is the Chief Editor of TradingPlatforms.com. He is an experienced finance and investment writer who is an expert on the stock market.
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