What are the Advantages of Pre-Built Algorithms in Algo Trading?

Algo trading has completely revolutionised financial markets, enabling faster and more advanced trade execution. As it gains global acceptance, algo tools and strategies continue to evolve. One of the most notable advancements in this field is the rise of pre-built algorithms, which benefit both beginner and experienced traders. In this article, we’ll explore the advantages of pre-built algorithms and why they are becoming increasingly popular among traders.

What are Pre-Built Trading Algorithms?

Algo trading, short for algorithmic trading, uses automated, pre-programmed instructions (based on factors like price and volume) to execute orders swiftly in financial markets. It has been gaining popularity due to its high speed and precision. These algorithms are built using complex mathematical formulas and coded in languages like Python or C++. However, creating them can be difficult and time-consuming, especially for those who lack the necessary skills and coding expertise. This is where pre-built trading algorithms come in! 

Pre-built algorithms are ready-to-use strategies designed by experts and proven to be effective. They eliminate the need for traders to code their own algorithms. With minimal adjustments, these strategies can be deployed in live markets.

Although pre-built algorithms offer an easy entry into algo trading, traders still need market knowledge to choose the right algorithm, customise it, and manage risks effectively.

The Advantages of Pre-Built Algorithms

Algo trading has many advantages that give a trader an edge in the fast-moving world of financial markets. Pre-built algorithms have all of those advantages, along with many more! Let’s see them below:

1. Accessibility:

Creating a personal algorithm often involves either hiring a programmer or dedicating significant time to learning coding. It could be expensive for non-technical traders. Pre-built algorithms could be more cost-effective than developing your own. Many platforms offer subscription or one-time purchase options, making algorithmic trading more accessible.

2. Proven Performance:

Pre-built algorithms often have a proven track record as they have been successful in the past. But it's not just about past data, pre-built algorithms often provide real, forward-test data. This shows how the strategy has performed in real time, building trust and credibility. This can boost a trader's confidence in using the strategy for live trading. 

3. Beginner Friendly:

Pre-built algorithms simplify the process by offering pre-designed strategies, making it easier for new traders to explore the world of algo trading without the need for extensive coding knowledge

Many algo trading platforms offer helpful resources and guidance for beginners. This on-the-job learning can be invaluable as it allows new traders to modify and implement strategies effectively.

4. Flexible:

Pre-built algorithms don't have to be a one-size-fits-all. Some algo trading platforms in India allow for customisation, hence traders can tailor them to their individual preferences or goals. This way, a trader can begin with a simple strategy and gradually add complexity by incorporating additional indicators.

To know more about technical indicators used in algo trading, check out this article.

You must be thinking, “All this sounds great, pre-built algorithms are the way to go!” However, there are some things to consider before making a decision. Let’s analyse them below.

The Disadvantages of Pre-Built Algorithms: 

While pre-built algorithms offer significant advantages, they also come with drawbacks:

1. Over-Reliance on Past Markets: 

Most pre-built algorithms exhibit backtested results from historical markets. However, past performance does not guarantee future success, especially in changing conditions. Even with forward testing available, pre-built algorithms are created with a different market condition in mind, which can impact profits. 

2. Lack of customisation: 

Some pre-built trading algorithms offer customisation opportunities before deploying them. However, these are very basic changes. By using pre-built algorithms, a trader doesn’t have the ability to create major changes when the market shifts. To have complete control over the strategy, a trader can approach do-it-yourself (DIY) platforms that code your strategy or they can code from scratch. 

3. Obsolete Strategies Risk: 

Financial markets are constantly evolving, and so are the strategies used within them. There’s a risk that older algorithms may not be reviewed thoroughly enough to stay updated, which could lead to a decline in their effectiveness over time.

Where Can You Access Pre-Built Algorithms?

1. Algo trading platforms: Platforms such as Tradetron, AlgoTest, and StockMock offer pre-existing algorithms that can be adopted or modified by the trader. They provide simple interfaces that allow the trader to select strategies by trading preference. Platforms like TradingView offer marketplaces where developers sell pre-built algorithms. Expert platforms like marketfeed create and execute algorithms for you, eliminating stress and offering a chance at higher returns!

2. Open Source Communities: There are open-source platforms or communities, like GitHub, that offer free algorithms to be downloaded, customised, or implemented where the flexible individual can tinker with strategies.

Note: It's essential to conduct thorough research and due diligence before selecting and using any pre-built algorithm. Always consider your specific needs, risk tolerance, and the potential limitations of pre-built algorithms before making any investment decisions.

Conclusion

Pre-built algorithms offer several advantages for traders, particularly those new to algorithmic trading. By eliminating the need for extensive coding, pre-built algorithms simplify the process and make it more accessible to a wider range of traders. These algorithms often come with pre-tested strategies and backtest data, providing valuable insights into their historical performance. Additionally, many pre-built algorithms offer customisation options, allowing traders to tailor them to their specific needs.

Overall, pre-built algorithms offer a chance for non-coders to enter into algo trading. They are a great resource to start with and can be used as the first step in the field!