Algorithmic Trading UK Guide 2022

Trading assets online and consistently outperforming the markets is no easy feat. In fact, this is something achieved by very few online traders. After all, you need to dedicated hours-on-end to technical analysis and fundamental research – and then act on your findings by entering risk-averse buy and sell positions.

With this in mind, it might be worth considering an algorithmic trading system. Also known as algo trading, this allows you to trade without in a fully or partly-automated manner, as the underlying software will make decisions on your behalf.

In this guide, we explore the basics of algorithmic trading in the UK – as well as which providers and brokers are worth your time.

What is Algorithmic Trading?

Put simply, algorithmic trading is the process of buying and selling assets in an automated manner. That is to say, your trading decisions will be driven by pre-programmed algorithmic software.

This is something that large-scale financial institutions have been doing for many decades behind the scenes. Fully in-line with the age of digitization, UK algorithmic trading systems are now available to the average Joe.

This opens up a world of possibilities for those of you that have little to no experience in how online trading works. Similarly, if you simply don’t have the time to research and trade financial instruments, an algorithmic system might be exactly what you are looking for.

The main concept of entrusting your funds with a piece of automated software is the technology can scan the markets 24/7. Whether that’s stocks, ETFs, forex, cryptocurrencies, or commodities – the underlying algorithmic has the potential to consider millions of trading scenarios each and every second.

Furthermore, the algorithm does not make reckless, emotional, or irrational trading decisions – nor does it suffer from fatigue. As such, this gives you the opportunity to invest in a risk-averse manner, not least because the algorithm is programmed to follow a strict set of trading conditions.

How Does Algorithmic Trading Software Work?

First and foremost, the algorithmic trading software is only as good as the person that built it. This is important to remember, as systems are built from the ground-up. Everything is based on ‘what-if’ conditions, meaning that the underlying software does not have the capacity to trade outside of these parameters.

For example:

• The algo trading system might be programmed to buy Apple shares when the stock price surpasses the 200-day moving average
• Similarly, the software might enter a sell position on GBP/USD when the RSI exceeds 70

With this in mind, the software bases all trading decisions on technical analysis. That is to say, the technology is tasked with scanning the markets via technical indicators, with the view of finding trends.

There are, however, several types of algorithmic trading programs available in the UK market. As we discuss in the more detail in the sections below, the product that you opt for should mirror the amount of control that you wish to give to the software.

Algorithmic Trading Software

If you are looking for an all-in-one automated trading system that requires virtually no input, you’ll want to consider an auto-trading robot. Otherwise referred to as a ‘trading bot’ or ‘expert advisor’, the autotrading robot will perform all trading duties on your behalf.

This includes:

• Performing technical research
• Placing buy and sell positions
• Setting up stop-loss and take-profit orders

As such, the automated robot allows you to sit back and trade in a 100% passive manner. In order to use an auto trading robot, you will need to find an online provider with a credible reputation.  After all, most algorithmic trading systems in the space claim to make unprecedented financial gains – but very few actually do.

Once you find a robot that you like the look of, you will need to purchase and download it from the respective provider. Then, you’ll need to install the robot onto a third-party trading platform such as MT4. Once you provide authorisation, the robot will proceed to enter buy and sell positions on your behalf.

Semi-Automated Robot

As the name suggests, a semi-automated robot gives you an element of control over your trading decisions. While its fully-automated counterpart will place buy and sell orders, semi-automated robots are tasked with performing research.

That is to say, the robot will scan the financial markets on a 24/7 basis, constantly looking for profit-making opportunities. Once again, the underlying software will utilize technical indicators like the RSI or MACD in its quest to evaluate charting trends.

Once a trading opportunity is discovered by the algo trading system, the software will notify you. Then, you will have the chance to manually assess the robot’s findings. If you think the trading suggestion looks viable, you will then need to manually place the respective buy or sell order.

Trading Signal Service

An additional way to access the UK algorithmic trading phenomenon is to use a signal service. This works in a similar way to a semi-automated robot, albeit, there is no requirement to purchase or install any software.

Instead, you will be using a third-party provider that has built an algorithmic trading system of their own, but don’t wish to release the underlying code to the public. This makes sense, as it can take many years to build an algorithm that has the potential to consistently outperform the market.

A trading signal service typically works like the below example:

• You buy a forex signal service that specialises in major and minor currency pairs
• The provider sends you a real-time signal when the algorithmic software finds a trading opportunity
• The signal will provide the currency pair, whether it’s a buy or sell order and the entry price
• You will also receive the required stop-loss and take-profit price

Once you receive the signal, you will be required to act on it with your chosen trading platform. There is no requirement to use a platform that is compatible with MT4, as you won’t be relying on software. Instead, you simply need to place the respective order as you normally would.

Copy Trading

We should also mention Copy Trading as a viable option. This is where you will select an expert trader that is active in your desired field (stocks, bonds, cryptocurrencies, etc.), and then copy their buy and sell positions like-for-like. On the one hand, this isn’t strictly an algorithmic trading system per-say, as your chosen trader will be performing research and placing orders manually.

With that said, the Copy Trading process provides you with exactly the same end-result. That is to say, once you allocated some fund to the trader, there is nothing more to do. On the contrary, you can sit back and enjoy a 100% passive strategy.

You can exit your position at any given time, with the proceeds placed instantly in your brokerage cash account.

Why People Do Algorithmic Trading

Still not convinced about what algo trading systems can do for your long-term investing goals? Below you will find some of the many benefits associated with the phenomenon.

Scan the Markets 24/7

It goes without saying that human traders are limited in how much time they can dedicate to trading. At the forefront of this is the research process. That is to say, performing technical analysis on a manual basis can require hours of dedication each and every day. After all, the financial markets can change course at an incredibly fast pace.

On the flip side, algorithmic trading systems can scan the financial markets on a 24/7 basis. They never experience fatigue either, so you can alleviate the risk of making judgements of error. Ultimately, by employing the services of an automated algorithm, you will never miss a trading opportunity again!

Trade Around the Clock

This particular benefit leads on from the section above. Not only can the algo trading system research around the clock, but it can do the same when it comes to placing trades. This means that by leaving the robot running at all times, you can buy and sell financial instruments all day, every day.

Millions of Scenarios

When a human trader analyses the markets, there are only so many scenarios that the individual can consider at once. This is in stark contrast to a pre-programmed algorithm. In fact, when you consider the capabilities of cutting-edge technologies like AI, the algorithm can consider millions of potential outcomes each and every second. Crucially,  the software is going to outperform the human brain by a considerable amount.

Trade Thousands of Assets Effectively

Seasoned traders will often specialise in a single asset class – like stocks, forex, or bonds. In fact, some traders will niche down even further – for example, only trading currencies denominated in US dollar or stocks listed on the NASDAQ.

This makes perfect sense, as it allows the trader to focus on a small set of pricing charts and ultimately, become an expert in the respective instrument.

However, this does mean that you are potentially missing out on a significant number of trading opportunities.

At the other end of the spectrum, an algorithmic trading bot can trade thousands of financial instruments at any given time. This is because the software is pre-programmed to follow a set of strict conditions, of which there is no limit.

100% Passive

If opting for a fully-automated trading system, you will be buying and selling assets in a 100% passive manner. This is something craved by many investors – especially those that do not have the required time to dedicate to trading. With that said, it is important to remember that there is no guarantee that your trading robot will make you money. Instead, if the software hasn’t been programmed well, you could make a loss.

Algorithmic Trading Strategies

There are many algorithmic trading strategies that a provider might consider using. Some systems will rely exclusively on just one strategy, while others will deploy many. While discussing hundreds of algorithmic trading strategies is beyond the remit of this guide, below you will find a selection of the most widely used.

Arbitrage Trading

Arbitrage trading is one of the most sought-after strategies in the online investment space. For those unaware, this particular strategy looks to profit when an asset is priced differently on two or more brokerage sites.

A simple example would be:

• Nike shares having a buy price of $100.50 on Broker 1
• Nike shares having a selling price of $100.55 on Broker 2

Now, profiting from arbitrage opportunities is virtually impossible when attempting to do it on a manual basis. For example, you would need to manually check each and every price across all of the brokers that you have accounts with.

When you consider that online trading platforms offer thousands of financial instrument, this just wouldn’t be possible. Even if you were able to do this, arbitrage opportunities typically remain in place for a matter of seconds. As such, you likely wouldn’t be able to act on the opportunity fast enough.

This is where an algorithmic trading system can help, not least because it can perform all of the aforementioned duties in micro-seconds.

Trend Strategy

As the name suggests, this particular strategy looks to follow market trends and cycles. That is to say, if an asset is enjoying a prolonged period of bullishness, the algorithmic trading system will look to follow suit by placing a buy order. Similarly, if an asset is in a bearish cycle,  the algorithmic will place a sell order.

With that said, executing a trend strategy is easier said than done. This is why the software will operate alongside technical indicators and machine learning technologies. It will specifically analyse metrics like the channel breakouts and moving averages.

Then, on the balance of probabilities, the algorithm will determine which way the asset is likely to move in the short-run. Naturally, the trend strategy employed by the software won’t always get its prediction right. As such, each trade will have an exit plan in place – notably in the form of stop-loss orders.

Algorithmic Trading Python

Algorithmic trading software is typically built using a specific programming language. At the forefront of this is python, not least because the language has the framework to meet the requirements of an autonomous trading system. Don’t forget, the overarching objective of the algorithm is to outperform the markets.

In order to do this, it needs to consider millions of potential trading outcomes each and every second.  The software will look to do this on a rolling 24/7 basis – potentially across thousands of assets. As such, algorithmic trading python systems are ideal for this purpose.

Algorithmic Trading Platforms

So now that you know how algo trading systems work – as well as the different types available to you, we are now going to discuss platforms. Below you will find a selection of providers that allow you to trade in a fully, or semi-passive manner.

Algorithmic Trading Fees

Here’s an overview of what fees you need to consider with the algorithmic trading platforms listed above.

Equity Broker	Product Cost	Deposit Fees	Minimum Deposit
AvaTrade	Variable spread	Free	£100
IG	£0 – £10 if buying and selling, variable spread for CFDs	Free (0.5%-1% on credit cards)	£250
FX Master Bot	Free to register	Not specified	$250
Learn 2 Trade	From £14.16 per month	N/A	N/A

Fees and commissions can change at any time, so make sure you

Algorithmic Trading Tips

The ability to research and trade 24 hours per day in a 100% passive manner is something that will appeal to most investors in the UK. Unfortunately, it’s not as simple as just purchasing a robot and letting it do its thing. On the contrary, the algo trading space is dominated by rogue providers that make hyperbole claims. While not all providers are scam artists, many are.

With this mind, below we have listed five algorithmic trading tips that will reduce your risks of losing money.

Tip 1: Verifiable Trading Results

Making returns of 40% each and every month sounds great on paper, but how do you know that the algorithmic trading provider is telling the truth?

The fact is that anyone can build an impressive website that makes super-bold claims are guaranteed profits, but much of the time this won’t be the case.

As such, it is crucial that you have a way to verify the provider’s historical trading results. In an ideal world, the provider will have linked their trading account with Myfxbooks.

This is a third-party platform that allows traders to publish their results in a public manner. If your chosen algorithmic platform has done, it’s certainly a good start.

Tip 2: Public Reviews

Researching an algo trading provider from top to bottom is crucial. At the forefront of this is searching the internet for reviews of actual users. This is isn’t always an easy feat, as scam artists have been known to leave fictitious reviews of our own product – which are obviously overly positive!

But, you can generally make a judgement on the credibility of reviews. A great metric to look at is with respect to the number of individual reviews that a rating is based on. For example, an 8/10 rating over 10,000 reviews is going to be much more reliable than a 9/10 rating over just 25 reviews.

Tip 3: Trial or Money-Back Guarantee

If the algo trading provider is confident in what they offer, they will have no issue with offering new customers a safeguard of some sort. For example, the likes of Learn 2 Trade offers a free signal service that consists of 3 suggestions per week. None of the data is hidden or blackout out, either. The same provider also offers a 30-day money-back guarantee on its premium package.

Tip 4: Start With a Demo Account

Once you have performed some due diligence on the provider, most traders start with a demo account facility. By this, we mean that you should install the algorithmic trading software into your MT4/5 demo account, and let it trade freely for at least a couple of weeks. Doing this for a solid month would be even more beneficial.

At the end of your ‘trial’, you will then have a full birds-eye view of how the algorithmic robot performs. Not only in terms of profits and losses, but important metrics like risk, stop-loss to take-profit ratios, and preferred asset classes. If everything looks positive, only then should you consider allowing the robot to trade with your capital.

Tip 5: Diversify, Diversify, and Diversify Some More

Irrespective of what asset class you invest in, the golden rule is to diversify as much as possible. This sentiment could not truer when it comes to algorithmic trading in the UK. Sure, your chosen robot might go on an unbelievable run of results, but there is no guarantee that this will always be the case.

In other words, the robot might encounter a substantially bad trading month and lose more money than you had anticipated.

The easiest way to protect your trading capital from such a scenario is to employ the services of many different providers. Not only this, but each algorithmic provider should target different asset classes with varying strategies. This way, if one or two robots have a bad run of results, you won’t feel the impact of this anywhere near as much.

How to Start Algorithmic Trading

If you have read our guide up to this point and you are keen to get started with algorithmic trading right now, following the steps outlined below.

This is because the platform offers the most transparent option in the automated trading arena. Due to the fact you can view the full historical trading results of each and every trader on the site. You also have the flexibility of being able to set your own stakes, adjust positions, and add or remove specific assets from your portfolio.

Step 1: Register an Account

When creating an account with a FCA-regulated broker, will need to quickly go through the account opening process. This is much the same as any other broker in the online arena and will require some personal information from you.

You will also be asked to upload a couple of verification documents. This includes a copy of your passport/driver’s license and a recently issued bank account statement or utility bill.

Step 2: Deposit Funds

You will need to deposit, each broker has a different minimum deposit amount. This is the same figure required to invest in an automated Copy Trading portfolio.

Supported deposit methods include:

• Debit/credit cards
• Bank transfer
• Paypal
• Skrill
• Neteller

If you want to diversify into several traders (which is recommended for diversification purposes), you will need to do this in increments of $200. For example, if you were to diversify your risk across three traders, you would need to deposit $600 and then allocate $200 into each portfolio.

Step 3: Find an Expert Trader to Copy

These platforms are home to thousands of copy traders, so you’ll need to spend some time researching an investor that meets your long-term goals.

For example, are you looking for a trader that has a good track-record buying and selling currencies, or are you more interested in targetting the equity trading space?

Step 4: Allocate Funds

Once you have chosen a Copy Trader, you will then need to allocate some funds. As noted earlier, this needs to be at least $200 per trader. By default, you will instantly copy the trader’s current portfolio. If you wish to mirror all ongoing buy and sell orders, you need to select this.

You can exit some, or all, of your position at any given time – as long as you do not fall below the $200-mark.

Conclusion

More and more UK-based investors are turning to algorithmic trading providers. After all, they allow you to trade on a full-time basis without you needing to do any of the legwork. Behind the scenes, the software will continue to research the markets on a 24/7 basis – and it never experiences emotions or fatigue.

With that said, the most challenging part for UK investors is finding a legitimate provider that meets their needs. This is why you need to perform enhanced research before parting with your money.

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