When we think of trading algorithms, we think directly of the algorithms used by large investment banks, sometimes capable of performing thousands of operations in one second. You are not necessarily wrong but there are also other types of simpler algorithms. After all, at one point, automated trading was only privileged to the upper echelons of the financial world. With the rapid progress in technology, everyone now has access to the power and potential of algorithmic trading.
You may wonder or perhaps might have even come across questions such as: Are they efficient? Are they better than human traders? Just how powerful is algorithmic trading and more importantly, can the average traders and investors profit from it? That’s exactly what we’re going to discuss today!
What is a trading algorithm?
A trading bot or algorithmic trading is a program that will constantly analyze the market and automatically open and close positions (buying and selling) following a set of parameters and instructions.
In this discussion, we are basing ourselves here on a classic trading algorithm – the Trend-Following or Mean Reversion type. This type of algorithm can easily be coded on platforms with their own language, such as Tradingview or MetaTrader.
Trend-Following versus Mean reversion—what do these two strategies mean? In very simple terms, Trend-Following strategy simply means it seeks to buy when a trend has started (or just before taking off) and ride it for as long as possible. On the other hand, Mean Reversion strategies are designed to assess assets that have gotten too far away from the “right price” and go either long or short, and wait until it reaches the target.
Is algorithmic trading better than humans?
It is undeniable that algorithmic trading is the next frontier. Industry research shows that global algorithmic trading market size is projected to grow from $11.1 Billion in 2019 to $18.8 Billion by 2024. In addition, the proportion of participants trading 80% or more of their portfolios via algo trading almost doubled from 10.98% in 2020 to 20.75% in 2021.
The above statistic is further backed by the multiple advantages of algorithmic trading over manual trading. Let’s analyze this point by point.
Algorithms have no emotions!
This is the most important component of an algorithm, it has no emotions! You know if you have ever tried to trade by yourself that it can be difficult to control your emotions when your capital is at work.
This can lead to dangerous behaviors for your money, such as cutting a position that is in the green too early and thus depriving yourself of a significant part of the gains. Paradoxically, in the case of losing positions, the manual trader will tend to keep his trade open in the hope that it will come back in the green.
This is of course almost never the case, which is why if you recognize yourself, a trading algorithm may be the solution.
The algorithms are faster!
Some of them are even designed exclusively to buy before you and sell right after, this is of course reserved for financial institutions.
Nevertheless, even the simplest trading algorithms have a faster execution speed than manual traders.
Algorithms have no distractions!
Trading Bots, regardless of your mood, whether you are in a state of euphoria or depression, will approach the market in the same way and with the same consistency. The same goes for market conditions.
Algorithms never sleep!
This is also one of the reasons for the success of crypto trading algorithms, they scan the market 24 hours a day, 7 days a week. This ensures that you don’t miss out on any opportunities.
Retail VS Institutional
Algorithmic trading is becoming more and more important in retail trading but automatic trading was not born yesterday.
In fact, the first trading algorithm was developed in the 1970s by investment banks and has been used every day since. The vast majority of trades made in the traditional markets, whether commodities, forex or stocks, are now made by an algorithm.
This trend is starting to make its way to the retail side of things, with more and more computer literate traders wanting to save time in the market by coding their algorithms. For the others, there are renting solutions. This trend applies to the legacy market as well as the crypto market.
For those in the crypto market and are looking for ways to maximize your gains and opportunities, Superbots is your answer—for the algo developers, traders and investors alike.
Superbots’ mission is to make automated algorithmic trading in DeFi accessible, easy to use and secure, to the traders and investors via our suite of vaults and bots. Each vault is a smart contract that allows users to deposit their capital and in exchange, receives “shares” of the vault. At any time, should the user decide to, he can convert the vault back to capital.
There is no account needed nor are there any upfront fees. Users only pay a fee when there is a profit. Just connect your DEX wallet, allocate the capital you want to trade in the vault to follow a bot, and the bots will be helping you trade.
For the algo developers who are looking to expand having your algos rented on other platforms and earn a performance fee at the same time, we invite you to get in touch with us!
Is algorithmic trading profitable?
This is a question that must be asked but for which it is impossible to give a straightforward ”yes” or “no” answer. Indeed, some algorithms are very powerful, if the associated risk is low, there is a great chance that this bot has required years of research and that it is not even available on the market.
Other algorithms have good results, but an untenable level of risk for most of us. Others only earn a few percent per month, but keep a level of risk and drawdown acceptable to everyone. The expected profit will always depend on the associated risk.
At Superbots, we provide you with state-of-the-art trading tools and complete transparency of our bots’ performance. Our bots have been helping investors and traders generate gains without them having to manage anything.
*Past performance results does not guarantee future returns*
Automatic trading is and will be more and more essential. It is an excellent way to earn passive income, diversify or complement your manual trading.
Managing your expectations, risks and allocating a longer time horizon are critical factors that contribute to the profitability of algorithmic trading. Just like in investment and trading, there is no shortcut to success—going from rags to riches is possible but it takes time and patience. If you come across products or tools that promise you absolute gains, be very careful. There is no certainty in life, neither in the legacy nor crypto market, and it is no difference with algorithmic trading bots.