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Dec 28, 2018 1:05:18 PM

Investment |

What is Algorithmic Trading?

Another trading method to trade CFDs or Forex is Algorithmic trading. All trading method have its inherent risks and some platforms may not allow the use of algorithmic trading. Algorithmic trading is a method of executing a large order (too large to execute all at once) using automated pre-programmed trading instructions accounting for a variety of variables such as time, price, and volume to send smaller slices (child orders) out to the market over time. Algorithmic trading is a way to make a profit by minimizing the cost, market impact and risk in an execution of order.

The Benefits of Algorithmic Trading

Algorithmic trading potentially provides the following benefits following the rules of the trading strategy without human Psychology decision or indecision getting in the way:
  • Trades executed at the best possible prices as per the trading strategy,
  • Instant and accurate trade order placement (thereby high chances of execution at desired levels),
  • Trades timed correctly as per the defined rules and instantly, to avoid significant price changes,
  • Reduced transaction costs,
  • Simultaneous automated checks on multiple market conditions,
  • Reduced risk of manual errors in placing the trades,
  • Back test the algorithm, based on available historical and real-time data,
  • Reduced possibility of mistakes by human traders based on emotional and psychological factors.

 

Algorithmic Strategies

The following are common trading strategies used in algorithmic trading:

  • Trend Following Strategies, which is very common and follows trends in moving averages, channel breakouts, price level movements and other technical indicators. These are the easiest and simplest strategies to implement because they do not involve making any predictions or price forecasts. Trades are initiated based on the occurrence of popular trends, which are easy and straightforward to implement through algorithms without getting into the complexity of predictive analysis.
  • Arbitrage Opportunities, which involve buying a dual listed stock at a lower price in
    one market and simultaneously selling it at a higher price in another market. These opportunities offer the price differential as risk-free profit or arbitrage. The same operation can be replicated for stocks versus futures instruments, as price differentials do exist from time to time. Implementing an algorithm to identify such price differentials and placing the orders allows pro table opportunities in an efficient manner.
  • Index Fund Rebalancing, which has defined periods of rebalancing to bring their holdings on par with their respective benchmark indices. This creates pro table opportunities for algorithmic traders. Such trades are initiated via algorithmic trading systems for timely execution and best prices.
  • Mathematical Model Based Strategies, where a lot of proven mathematical models, like the delta-neutral trading strategy, allow trading on a combination of options and its underlying security. Trades are placed to offset positive and negative deltas so that the portfolio delta is maintained at zero.
  • Trading Range (Mean Reversion); this is based on the idea that the high and low prices of an asset are a temporary phenomenon which reverts to their mean value periodically. Identifying and defining a price range and implementing an algorithm based on that which allows trades to be placed automatically when the amount of an asset breaks in and out of its defined range.
  • Volume-Weighted Average Price (VWAP) strategy breaks up a large order and releases dynamically determined smaller chunks of the order to the market using stock particular historical volume profiles. The aim is to execute the order close to the Volume Weighted Average Price (VWAP), thereby bene ting on average price.
  • Time Weighted Average Price (TWAP) strategy breaks up a large order and releases dynamically determined smaller chunks of the order to the market using evenly divided time slots between a start and end time. The aim is to execute the order close to the average price between the start and end times, thereby minimising market impact.
  • Percentage of Volume (POV) requires the trade order to be fully filled. This algorithm continues sending partial orders, according to the de ned participation ratio and according to the volume traded in the markets. The related “steps strategy” sends orders at a user-defined percentage of market volumes and increases or decreases this participation rate when the stock price reaches user-de ned levels.
  • Implementation Shortfall strategy aims at minimizing the execution cost of an order
    by trading off the real-time market, thereby saving on the expense of the order and benefiting from the opportunity cost of delayed execution. The strategy will increase the targeted participation rate when the stock price moves favourably and decreases it when the stock price moves adversely.

Technical Requirements for Algorithmic Trading

Implementing the algorithm using a computer program is the last part, clubbed with back testing. The challenge is to transform the identified strategy into an integrated computerized process that has access to a trading account for placing orders. The following are needed:

  • Computer programming knowledge to program the required trading strategy, hired programmers or pre-made trading software;
  • Network connectivity and access to trading platforms for placing the orders;
  • Access to market data feeds that will be monitored by the algorithm for opportunities to place orders;
  • The ability and infrastructure to back test the system once built, before it goes live on real markets;
  • Available historical data for back testing, depending upon the complexity of rules implemented in the algorithm.

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Our MDA Model Portfolio's 2018-2019 financial year audit has just been completed and we are delighted to share the results.

Our performance varied between strategies, overall a solid result

The following Strategies have been Audited below for the 2018-2019 financial year:

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Our first Investment Seminar was held in Melbourne on the 10th of April 2019 at the RAVC Club.

We had a great turnout for the event with the support of Robert DiPierdomenico (Dipper) and our shareholders. An informative and social night with strong interest in our Managed Investments from the attendee's below is a few photo's of the evening.

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Investment, Portfolio | 5 MIN READ

SMH

Mar 21, 2019 7:18:57 AM

Walker Capital Features in the Sydney Morning Herald

 

Following the Royal Commission into the banking sector, investors are looking for transparency and responsibility when choosing where to put their money – with Managed Discretionary Accounts (MDAs) emerging as an increasingly preferred option.

‘‘People are now much more well informed with investments and want to know what’s going on with their money,’’ says Michael Walker, principal of Sydney-based investment management firm Walker Capital.

‘‘Investors are moving away from traditional and less transparent funds into MDA structures because they want to maintain ownership of their investments. They want transparency and real-time access to their accounts.’’

The Institute of Managed Account Professionals reports that in 2018 MDAs experienced year-on-year growth of 31 per cent, representing $14.85 billion, thereby increasing funds under management in MDAs in Australia to $62.43 billion.

When setting up Walker Capital three years ago, Walker says he aimed to create an investment company that is ‘‘transparent and secure’’ while simplifying the sign-up process with ‘‘digital onboarding’’ to streamline applications.

There is growing demand for investments into alternative asset classes as investors seek to diversify and de-risk their portfolios, he says.

‘‘In alternative assets like Forex and CFDs [contracts for difference], investors need to understand the MDA investment and what the risks are,’’ Walker says. ‘‘There is leverage in many of these investments and investors need to understand these risks against the potential rewards.’’

With a mix of retail and wholesale clients and a team of veteran traders, analysts and investment managers, Walker Capital aims to ‘‘balance the risks’’ and give its customers a healthy net return on their money, he says.

The MDA structure allows each client to have a separate investment account.

‘‘Our investments are not correlated to the market,’’ says Walker. ‘‘We use a mix of fundamental and technical analysis to target positive return in a rising and falling market.’’

‘‘Using derivatives in Forex and CFDs allows us to take advantage of that opportunity.’’

 Walker says the team provides a professional product in an alternative space with transparency and accountability.

‘‘Client funds will be held in a segregated trust account with an external counterparty. We utilise either Pepperstone or Interactive Brokers to hold the funds.’’

Walker Capital clients, who sign up with a minimum of $20,000, are also able to watch in real-time how their investments are performing.

‘‘In a normal managed fund you’ll get your statement, but you don’t necessarily see what is going on,’’ says Walker. ‘‘With us, you can log into your account at any time and actually see what’s happening with your money.

‘‘We also don’t have any lock-in periods and there are no exit or entry fees.’’

Clients who sign with Walker Capital benefit from the insight of brokers across the globe, he says.

‘‘We’re a small team,’’ says Walker. ‘‘But there is a value that we add for our clients because we have our own money invested in our own strategies too. And, as such, our interests are aligned with our investors.’’

SMH

Investment | 5 MIN READ