Algorithmic trading is trickling down to individual investors:
Armed with $4.5 million in funding, the 2011 Harvard grad recently launched a Web-based platform called Rizm, designed to let individual investors with no coding skills build computer programs that select and trade stocks automatically, similar to the trading programs used by quant funds and high-frequency trading firms.
The pitch: For $99 per month investors get quick cloud access to sophisticated algorithm-building tools and the capability to back-test strategies. You can easily generate rapid-fire executable trades, sans emotion, and place them with an e-broker. Suddenly the notion of blasting out math-driven trades like über-successful quant hedge funds, such as James Simons‘ Renaissance Technologies, are a few clicks away.
Bad idea. Modular, user friendly computer trading programs have been around for awhile. They are not the real thing and, even if they were, your hardware and connection speed cannot compete with getco, et al. You’ll get hurt.
When the big firms are building supercomputers and digging trenches to get their algorithms access to data literal nanoseconds before the competition, and spending millions of dollars for those few nanoseconds, there doesn’t seem to be a way for the home investor to credibly compete.
Algorithmic trading is much broader than HFT, which gets all the press. Plenty of algorithmic funds trade at daily or lower frequencies.
(Not that that makes DIY algo trading a good idea. This is not investment advice, etc.)
Anomaly UK,
That is perfectly true, what you’re saying, but it’s important to realize the level of dominance the algos have over the markets. Even if your strategy has a timeframe estimated to be hours, low frequency — you’re not duking it out with sub-millisecond crowd — they still have ways of getting to you. For one, your offsetting order, if it’s a winner, is much harder to get a fill on than it used to be. Prints of a certain price are put out without much corresponding volume. (It trades, say, 52.45 but not enough for you to get yours).
Also, most automated programs have stop-loss orders placed after every opening trade. These are the bread and butter of HFT programs. They can run the market up or down to your price, trigger your stop, and run it back the other way in less than a second. You won’t know what hit you. Is it illegal? Probably, kind of, sort of. Does it matter? Apparently not or not for some.