Algorithmic trading, or automated trading or algo-trading, uses computer programmes to automatically make trades on financial markets. These trades can be in stocks, bonds, options, futures, or other tradable assets.
Algorithmic trading with options is an excellent way for beginners to start trading, and anyone can participate in this if they have an account with a regulated broker such as Saxo Bank.
Options are a derivative, which means they derive their value from an underlying asset. The most common underlying asset for options is a stock. You enter a contract with another person or entity when you buy or sell an option. This contract enables you to buy or sell the underlying asset at a set price on or before a specific date.
Options are popular because they offer investors a way to hedge their bets and make money whether the market goes up or down. They also provide leverage, which means you can control a more significant position with less money.
Algorithmic trading with options is relatively simple. You need to choose the right software and set it up to trade according to your desired parameters.
How to trade options with Algorithmic trading
Table of Contents
Here is a look at how to trade options with algorithmic trading.
Find a good trading platform
The first step is to find a good options trading platform. There are many different platforms, so it is essential to research and choose one that suits your needs. Make sure the platform you choose has a demo account to test it out before you commit to trading with real money.
Set up your software
Once you have chosen a platform, the next step is to set up your algo-trading software. Again, there are many different software programmes out there, so make sure to do your research and choose one that is compatible with your chosen platform and easy for you to use.
There are two main types of algo-trading software: technical analysis software and market data software. Technical analysis software analyses price patterns and predicts future price movements. In contrast, market data software tracks market prices and news.
Choose your trading strategy
After setting up your software, you’ll need to choose a trading strategy. There are many different strategies, but the most important thing is to find one that fits your risk tolerance and investment goals. Some common algo-trading strategies include trend following, mean reversion, scalping, and arbitrage.
Once you have chosen a strategy, you need to backtest it to see how it would have performed in the past. It will help you assess whether or not the strategy will likely succeed in the future.
Set up your trading rules
The final step is to set up your trading rules. It includes deciding how much money you are willing to risk on each trade, what types of signals you will use to enter and exit trades, and what your profit goals are.
It is important to remember that algo-trading is a tool, not a guarantee of success. Even the best algo-traders can lose money if they don’t follow their rules or manage risk.
Algorithmic trading can be an excellent way for beginners to start trading. Just be sure to research and choose a good platform, software, and strategy before you start trading with real money.
Algorithmic trading platforms in Australia
Let’s look at trading platforms in Australia.
MetaTrader 4
MetaTrader 4 is among the most favoured algo-trading platforms in the world. It is available for free from many online brokers. MetaTrader 4 offers a wide range of features, including advanced charting tools, a built-in programming language, MQL4.
TradeStation
TradeStation is another popular algo-trading platform. It is available for free from online brokerages. TradeStation offers many of the same features as MetaTrader 4, including advanced charting tools, a built-in programming language, and the ability to backtest your trading strategies.
NinjaTrader
NinjaTrader is a free algo-trading platform available from online brokerages. NinjaTrader offers many of the same features as MetaTrader 4 and TradeStation, including advanced charting tools, a built-in programming language, and the ability to backtest your trading strategies.
eSignal
eSignal is a paid algo-trading platform that offers a wide range of features, including advanced charting tools, more than 150 built-in technical indicators, and the ability to create custom indicators. eSignal also allows you to backtest your trading strategies.
