According to statistics, the share of automated trading has reached 80% of the stock market. It is a clear indication of the automated trading systems (ATS) efficiency in risk management and increasing profitability in any market environment. But what does it take to develop an impervious, exact, and no-fault ATS? Read on to learn how to build a trading platform and get answers to other questions you might have about trading system development.
What Is an Automated Trading System?
Before we get to building an automated trading system, let’s define the term. ATS is also referred to as algorithmic trading, algo, mechanical or automated trading. All these names mean a trading platform that monitors stock markets for certain conditions with the help of computer algorithms. Traders establish specific rules for buying and selling orders, and these rules are automatically executed via ATS.
Such systems came about as a result of the growing popularity of trading and the increasing number of private investors. These conditions stipulated the emergence of trading means designed to facilitate the buying and selling orders on the stock exchanges, and the use of these means will only extend.
Advantages of Automated Trading Systems
With the improvement of technical capabilities and the emergence of new software, automated trading is becoming increasingly accurate in managing the risks and growing trading profitability. Below you’ll find the most meaningful advantages of algo trading.
One of the biggest challenges is to develop a trading plan and stick to it. Even a potentially profitable strategy will fail if traders bend their own rules. Automated trading systems allow users to achieve consistency by trading according to a plan, and neither fear of taking a loss nor the desire to get more profit from trade would lead to a breach of discipline.
Reduced risk of manual errors
Automated trading software reduces the risk of manual errors mitigating the human factor. Where a person runs the risk of error out of stress, distraction, rush, or fatigue, there the computer acts unmistakably. It is a great benefit in the activity where a single misclick can literally cost you a fortune.
ATS enables users to trade on multiple accounts by either replicating the strategy on diverse stocks or applying different strategies simultaneously. It scans different markets looking for certain conditions, generates orders, monitors trades, and enables users to trade around the clock thus allowing them to diversify their portfolio in the most efficient way. This enables you to distribute the risk across different instruments, while still insuring yourself against losing positions.
Backtesting helps traders to determine the winning strategy by testing rules on historical data before risking their money in a trade. That is due to the very principle of automated trading. Designing such a system implies that the computer needs to be told exactly what to do, and all rules need to be absolute. Traders set these precise rules on historical data, thus validating or quashing the idea. This allows users to adjust a strategy and helps to prevent losses before starting real trades.
Instant orders placement
When it comes to getting in or out of a trade, even milliseconds can affect the deal. Therefore, when designing the system, it is necessary to achieve the lowest possible latency. This is particularly relevant for volatile markets when prices can change too quickly. High-frequency trading systems immediately generate orders when trading criteria are met therefore maximizing the chances of the best possible deal.
Reduced emotional component
Sober and informed decisions are what help traders to succeed though sometimes it’s quite hard to think straight and stay impartial and calm. An automated trading system offsets the human factor’s role as it doesn’t feel the excitement, and it always follows the established rules reducing risks of compulsive and inconsiderate trades. The system is automated, which means fewer chances for a trader to lose the entire capital.
Cost of Automated Trading System Development
Let’s clarify how much it costs to create a trading platform and what features to implement. The final cost can vary depending on the vendor’s rates, so we’ll measure expenses in person-hours for the sake of convenience. Note that these are rough estimates, however, we can estimate person-hours accurately if you approach us and describe your needs and requirements.
Building an ATS starts with the implementation of trading strategies. There is no one-size-fits-all approach, so users need to find their preferred strategies that can be automatically traded then. For this, they have to be able to select between different technical indicators and use them as a set of rules for trading. Setting these indicators up and implementing trading strategies is a meticulous process that takes over 150 person-hours.
Backtesting enables users to examine and tweak a strategy on historical data before risking money in a real trade. It’s a vital feature that has become a standard of every efficient ATS. Implementing backtest functionality can take from 80 to 120 person-hours.
Real-time and historical market data
But implementing the backtest function is only half the battle. Another half is to provide real-time and historical market data for live sessions and building graphs. There can be one or several data providers, for example as backup data sources or for any other reason. Gathering and supplying comprehensive market data requires from 60 to 120 person-hours.
To place and execute orders, users need to connect their brokerage accounts to ATS. It is possible by integrating brokers into the automated trading system. Depending on the number of brokerage platforms you want to integrate, it can take from 60 to 150 person-hours.
Trade log enables users to get a holistic view of their trading history helping them to highlight successes, identify mistakes, and fine-tune their preferred strategies. The trade log usually contains such details as rules set for orders, instruments, order types, number of contracts, price, time, etc. The estimated time for implementing trade log functionality is 60 – 95 person-hours.
Adjustable settings and parameters
Flexibility is imperative for a truly superior ATS. To meet all the requirements of the rapidly changing market, the system must be adjustable and customizable. Users might want to adjust parameters for protective orders, adjust the maximum order size, maximum intraday position, price tolerance, etc, and they should be able to adjust their strategies anytime they need it. Making settings and parameters adjustable takes from 160 to 220 hours.
Though the very term of ATS implies automation, it does not exclude manual control because sometimes users need to fine-tune some parameters. Trade management functionality enables users to actually manage trades at the moment they are executed – send the limit order, set the stop loss/take profit value, cancel orders, close positions, and customize many other parameters to improve their results. According to different estimates, implementing a trade management function requires about 50 – 70 hours.
Dashboard and charts
Sustainable access to users’ data is essential for making data-driven decisions. Dashboards and charts help users to have at hand such details as the account’s total balance, day trading results, commissions, different indicators, price movement, and whatever else they need to improve their results. Implementation of dashboard and charts is estimated at 120 – 160 person-hours.
Paper trading feature simulates market environment reproducing some features of a real stock market on a computer. It allows participants to practice without financial risk before placing real orders. Implementing paper trading functionality is not that labor-incentive, but the benefits are great. According to some estimates, it can be done in 20 – 30 person-hours.
Note that these are rough estimates. The cost is based on the average hourly rate of developers, which is $50 per hour.
Where to Start to Build an Automated Trading System?
Let’s figure out what to consider when choosing a contractor for ATS development.
Experience and specification
When choosing between shortlisted trading software development companies, ask about the relevant experience because it’s irrational to expect that the company specializing in let say telemedicine would build a stellar ATS.
Figure out if the vendor has similar projects in the portfolio. What’s now with these projects? Is there an experienced BA in the company who has worked on industry-specific projects? Is he/she capable of clearly conveying your requirements to the development team?
Consider the details carefully and not compromise if the vendor is short of one important ingredient of productive collaboration.
Post-development support and maintenance
Developing the system itself is half a win. Another half is ongoing support and maintenance of the existing system. Before entering into a contract, find out in advance whether and on what conditions the vendor provides further maintenance.
It’s clear that overpaying for world-known names is not the quality guarantor. Yet there is a direct correlation between the quality of the result and the cost of the vendor’s work. Trying to get ATS developed on the cheap will assuredly lead to problems, so try to find a middle ground instead of sacrificing quality for the sake of cost savings.
Traders want to be sure the money and data they entrust to ATS are perfectly safe. The reputation of your ATS must be impeccable, and it’s clearly dependent on the reputation of the contractor you’d chosen for building the system.
Itexus Expertise in Automated Trading Systems Development
We developed a stock trading bot for a wealth management company with 20 years of experience. The client wanted to digitize their business to grow their customer base, increase trading profits, and reduce operational costs by developing a SaaS system that would automate trading strategy and operations. The algorithmic intraday stock trading system we developed allows clients to register and connect their brokerage account, configure trading strategy parameters such as buying power, leverage, risk level, etc., conduct automated trading from their brokerage account, monitor trades in real-time, and view profit/loss reports. In return, they pay a commission fee and a percentage of the profit made. For more details on this project, see the original case study.
Developing a robust, trouble-free, and efficient ATS is a laborious process that success consists of many components: customer’s requirements and resources, vendor’s experience, and clear communication between them. The quality of the ATS is essential as malfunctioning or featureless software can lead to huge losses, so automated trading system development requires solid experience from the vendor’s side. Drop us a line if you have a drafted concept of a trading system – we are equipped to turn it into a competitive and robust ATS.