Our algorithmic trading UK guide explains how automated trading, bots, signals and strategies work, reviews trading software and selects the best providers and brokers. Read on to see how the world of computer-driven trading could give your trading the edge, while avoiding the pitfalls.
- 1 What is Algorithmic Trading?
- 2 Advantages of Algorithmic Trading
- 3 Best Algorithmic Trading Software
- 4 Algorithmic Trading Strategies
- 5 Is Algorithmic Trading Profitable?
- 6 Algorithmic Trading Python
- 7 Best Algorithmic Trading Platforms
- 8 Top Tips for Algorithmic Trading
- 9 Algorithmic Trading Pros & Cons
- 10 How to Start Algorithmic Trading
- 11 Conclusion
- 12 eToro – Best Algorithmic Trading Platform UK
- 13 FAQs
What is Algorithmic Trading?
Algorithmic trading is the name given for computer-driven automated trading programs used to execute orders.
A program will act on a series of inputs provided by the trader as a set of rules and instructions (algorithm) to be carried out under set conditions and times.
Programmed technical analysis
Technical analysis can be expressed programmatically with triggers for price events that lead to order executions or generate signals.
It is your choice how much control you want to have over the process – take a passive approach where you are happy to let the programs run with minimal oversight; or a more active approach, both in creating and refining algorithms and intervening to alter program responses.
Algorithmic trading – sometimes called automated trading, algo trading, or ‘black box’ trading – was once only available to financial institutions with the resources and expertise to build and deploy computer programs for trading. That’s not the case anymore.
Algorithmic trading software in the hands of retail investors evens up the score among market participants. Algo trading is the better and bread butter of day traders.
Advantages of Algorithmic Trading
The advantage of using automated or blackbox trading is the speed at which trades can be made and the number of simultaneous orders that can be made.
Algo trading is the software foundation of rules-based quantitative investment strategies and high-frequency trading (HFT). Automated trading brings ‘quant’ investing to the retail investor. Armed with quant analysis and inputs and lightning-fast hardware positioned close to exchanges, trading firms seek out critical time advantages and pricing anomalies and spreads.
With the power of algo, ordinary investors can do the same, even if they don’t have quite the same power in the hardware department.
You don’t need to be a professional trader at a Chicago trading house sitting on billions of dollars in state-of-the-art infrastructure and kit to leverage the advantages of algorithmic trading, even if the small fry can’t compete at the microsecond level with the pros, you can steal a march on the rest of the retail crowd.
Bottom line, computers are faster than people – order execution is measured in milliseconds (a thousandth of a minute) and microseconds (a thousandth of a millisecond).
Best Algorithmic Trading Software
Algo trading software comes in many forms and with varying levels of sophistication. Naturally, the more power and control you want, the more you will have to pay.
We have broken down the auto trading software scene into four groupings: bots, trading signals, copy trading, and platforms.
Auto-trading robots – also known as expert advisers – will continuously watch for certain event conditions to be met to execute a trade, including all types of order information such as stop-loss and take-profit orders. Bots were first embraced in the forex trading community for automating the trading of currency pairs but are now available across asset classes.
If you want more control over the trading, you could opt for a semi-automated option. The robot will conduct necessary research as required and technical analysis. Relative strength indicator and MACD (Moving Average Convergence Divergence indicator) are commonly used inputs along with the 200-day, 100-day, and 50-day moving averages.
Trading signals are more about the research side of trading. Investors can think of a signal as something you plug into a bot, although the terms bot and signals are often used interchangeably.
Signals are based on technical analysis or a human analyst and can be delivered to the end customer in a number of ways. But whether it is an email newsletter or a Telegram chat room, signals will cost you.
The generator of the signals will be using similar algorithms as the bots but with the difference that the signals don’t take action.
A trading signal service might work as follows:
- Buy a forex signal service for currency pairs
- The provider sends you a real-time signal when an algorithm finds a trading opportunity
- Signal sends the following data: currency pair, buy or sell, entry price
- Other signal output data: stop-loss and take-profit order
After receiving the information it is the responsibility of the client recipient to act on it in a timely fashion.
With this form of automated trading, you follow and copy the trades of an expert trader.
Products from global investment platform eToro let you copy the trades of an individual high-return trader (TopTrader Portfolio) of buying into one of its CopyPortfolios. These are composed either of a collection of individual traders or a collection of investment products, such as CFDs, ETFs, and forex.
Although strictly not automated trading in that there is a human being making trades in the case of the TopTrader Portfolios, it is a quick and easy way to get some of the benefits of passive investing in terms of relying on the expertise of others with minimal effort at your end.
CopyPortfolios (and CopyTraders) are not a robot or signal services as such but don’t forget that a program is ultimately only as good as the programmer.
Not strictly software but the packages available from broker platforms bring together bots, signals, and strategies all under one roof.
One such example comes from broker Europefx, with its RoboX brand that specialises in smart trading strategies.
Answer a simple questionnaire and then see your answers used to create personalised trading strategies, courtesy of the proprietary Tradency algorithm. The algo scans a database stuffed with more than a billion trading strategies. Profitable trading strategies are recommended in real-time and matched to your trading profile.
Algorithmic Trading Strategies
Arbitrage trading seeks to profit from small anomalies and discrepancies in prices at different trading venues or through other mispricing events. Arbitrage opportunities appear and disappear quickly and the amounts involved can seem small. But with algo trading you have the ability to scan in real-time for the opportunities and, equally importantly, to act quickly to execute multiple trades at once.
A simple example would be:
- Apple shares having a buy price of $100.50 on Broker 1
- Apple shares having a selling price of $100.55 on Broker 2
Imagine trying to grab this and similar arbitrage opportunities across the market without using programming! Think of all those brokers with slightly different prices reflecting their own order books, and then multiply that by the thousands of financial instruments out there, and one can see why this is a job well suited to algorithmic trading.
As it says on the tin, this strategy looks to follow market trends and cycles – it is also referred to as momentum investing. That is to say, if an asset is enjoying a prolonged period of bullishness, the algorithmic trading system will look to follow the trend by placing a buy order. Similarly, if an asset is in a bearish cycle, the algorithmic will place a sell order. Price movements, in this case, that go against the upward trend would be taken as buy signals.
Having said that, executing a trend strategy profitably is not easy, which is why software has found an increasingly important role alongside technical indicators and machine learning technologies. It will specifically analyse metrics such as 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.
Is Algorithmic Trading Profitable?
Most people lose money trading. The algortihmic trading UK scene will have its cast of high-rolling losers just as any other country or trading technique.
Many of the brokers involved in providing software or acting as vendors and service operators on behalf of their own platforms are from the CFD broking community. Around 70% of CFD traders lose money. But it should be stated that not all of those traders will necessarily be algo traders. Nevertheless, that seems like a steep hill of losses to climb or to stay in the 30% of winners.
Notwithstanding the CFD aspect, the best algorithmic trading software packages do claim high success rates -(percentage of trades closed in profit) for their blogs but don’t take these at face value without further investigation such as looking up reviews.
Algorithmic Trading Python
Algorithmic trading software is typically built using a specific programming language. The most popular one is Python, a flexible language with frameworks (libraries of code for particular groups of tasks) to meet the requirements of an autonomous trading system.
Learning to program in Python would be a great benefit to designing your own bots. Other popular languages include C++, java, and .NET.
The overarching objective of the algorithm is to outperform the markets. To achieve this end, it must analyse millions of potential trading outcomes every second – and millisecond – on a rolling 24/7 basis across thousands of financial instruments.
As such, the scope for programming the analysis of the patterns and curves created by stock prices, trading volume, and other metrics, is eminently suited to the logic-crunching of software algorithms.
Python has establised itself as the best route for those looking for a ground-up approach to building bots and/or interested in improving on the algo efforts of others in the trading community.
Best Algorithmic Trading Platforms
eToro provides a cheap way of accessing the signals of verified top traders on its platform through its CopyTrader feature and CopyPortfolios.
eToro is a pioneer in social investing and at the centre of that is being able to copy the trades of another trader on the platform.
Obviously, an investor will want to copy the trader with the best returns and eToro makes that frictionless and without the worry and hassle of paying for signals that turn out to be misses.
But in addition to CopyTrader there is now CopyPortfolios. These portfolios include professionally managed ones but also include automated features such as rebalancing.
There are two types of Copy Portfolio: TopTrader Portfolios and Market Portfolios.
The TopTrader portfolio consists of traders who follow an investment strategy, style, and returns that fit your goals and targets.
Market Portfolios on the other hand select CFD stocks, commodities, and exchange-traded funds that conform to a particular investment mandate.
Copy Portfolio are structured as long-term to medium-term investments which means an investor should be expecting to hold for at least five years. The minimum investment in a CopyPortfolio is $5,000.
There is no commission or management fee to pay with eToro CopyPortolios (or with CopyTrader) – the platform makes money on the spread between the buy and sell prices of assets.
The base currency of eToro is the US dollar so expect to be charged 0.5% for currency conversion.
- $200 minimum deposit (£160)
- Get up and running quickly
- Leader in social trading
- Deposit funds with a debit/credit card, e-wallet, or UK bank account
- CopyPortfolios have no management charges or commission.
- Not suitable for advanced traders that want to work with bots directly
2. AvaTrade (via MT4/5)
AvaTrade provides MT4/5 and its own proprietary AvaTradeAct platform.
The minimum deposit is $100 and markets cover stocks, indices, commodities, bonds, and cryptocurrencies (via CFDs), and forex (more than 50 currency pairs).
This fully regulated platform does not provide trading signals but has the full breadth of auto trading software, from MetaTrader4 to Duplitrade, RoboX, Mirror Trader, and MQL5, to get your forex robots up, running, and making money.
- Fully regulated
- Low minimum deposit
- 50 currency pairs
- Full choice of trading software
- No trading signals
Telephone customer support
Worldwide telephone support coverage shows a welcome commitment to customer service.
The company is regulated by financial authorities in Ireland, South Africa, Australia, and Japan.
Withdrawals to credit and debit cards take up to five days, wire transfer 10 days, and 24-hours for e-wallets.
Leverage is available depending on jurisdiction/market.
3. IG (MT4, pro-real-time, native APIs)
The best-integrated platform comes from the investment and trading platform IG. In common with the rest of the retail auto-trading space, IG uses the MetaTrader 4 (MT4) trading software and ProRealTime for charting.
MT4 is used by many brokers – especially in forex – because of its market penetration built up over the years which means it has a community of traders continually improving on the algos available to purchase at the platform’s marketplace. MT4 started life in 2005, founded by Metaquotes.
18 indicators bundled with a package
Handily, IG bundles 18 indicators and add-ons when you download MT4 from them, so you don’t have to buy them on the marketplace.
In addition to MT4, IG also offers the ProRealTime charting package which it rightly flags as the easiest way to get started with making your own algos. ProRealTime comes with an optimisation suite where you can carry out the all-important backtesting of algorithms. Backtesting is the technique where the program is run on historical data price series where the trades and signals can be scored for returns generated.
The third leg of the IG service is its API – the software that enables computer services to interact, with examples for the types of data that can be sent, how requests for data are made, and so on. The application programming interface opens up IG’s market data and trading technology to clients’ own self-created algos but requires knowledge of computer programs and coding to fully utilise.
The service offers off-the-shelf algos or the option to craft your own to be executed as spread bets and CFD instruments.
- Well-established broker, fully regulated
- ProRealTime charting software
- off-the-shelf algos
- Leader in spreadbetting
- Demo account
- Suits beginners and advanced
- Excellent education and analysis tools
- 76% of CFD investors lose money
4. FX Master Bot
Easy customisation of the algos is a key selling point of FXMasterBot. The entry ‘novice’ package costs $250 and comes with three currency pairs.
The MasterBot Expert account costs $500 and comes with a leaderboard multiplier x3. And nine currency pairs. Trades begin from a minimum amount of $25.
The MasterBot Master account and the Expert both require minimum deposits of $500. The Master account provides 17 currency pairs and unlimited open positions.
Customers can switch between a number of brokers, including EuropeFX, 24Option, and iTrader.
There are no fees charged on FXMasterBot and the demo account provides a good introduction for beginners.
- Easy customisation of algos
- Leverage available
- Minimum trade size $25
- Easily switch between brokers
- No fees
- Master and Expert accounts require $500 minimum deposit
Attracts a lot of cryptocurrency and FX traders. Signals and alerts are sent directly to your email or phone with an entry price level and chose to execute from one of the listed brokers, such as eToro, capital.com, and Avatrade.
A full array of technical analysis metrics can be plugged into the algos, from Fibonacci retracements to Bollinger bands and moving averages
The premium service starts at $35 a month but is better value for money if you pay a larger amount less frequently – $65 for three months; $95 for six months. Premium also comes with free VIP signals for the year.
Without paying anything at all, customers can receive three signals for free each week.
There is also a Telegram chat group that is free to join but the reliability of the signals and alerts is such that you will be pushed to paying for the premium service.
Learn2Trade is regulated by the UK Financial Conduct Authority.
Claimed win rate 82% with average monthly gains of between 30-40%.
- Popular with FX traders
- Value for money, with premium starting at $35 a month
- Win rate of 82%
- 3 free signals each week
- Telegram chat group
- Regulated by the FCA
- Heavy forex focus may not suit those interested in other asset classes
- Some reviewers say many signals are not profitably actionable
Broker fees comparison table
|Broker||Product Cost||Deposit Fees||Minimum Deposit|
|eToro||No additional fees to copy trade||0.5% currency conversion||$200|
|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 (6-month pan)||N/A||N/A|
Top Tips for Algorithmic Trading
- A broker can claim all the success rates they like for their bots but unless they are verifiable that’s no use to the prospective customer. One way to verify success rates is by checking if traders have recorded their positions and earnings with a third party that allows public access. For example, linking trading accounts to myfxbooks would be a good start and allow a customer to interrogate the accuracy of trading results.
- Reviews on platforms such as TrustPilot and elsewhere are a must before depositing funds with a broker or paying out for trading software. Some reviews will be false but you can control for that by seeking out the avenue that provides a decent sample size for reviews. A site proclaiming a score of 4 out of 5 stars on the basis of two reviews is not as helpful as 4 out of 5 from 20 reviews.
- Always start with a demo account. Even if you are relatively experienced, it is a good idea to use the demo account so you can find yourself around the new trading venue.
- Go with a software vendor that provides a money-back guarantee or trial period.
- Full-spectrum trading – adopt different strategies with different platforms and an ix of asset classes. This will help to avoid situations in which all your trades fall foul to a problem unique to one bot. Traders should also trade across a variety of asset classes – diversifying in this way means, for example, if stocks go down one month, bonds or precious metals may have gone up.
- Algorithmic trading can be an intimidating subject to get to grips with. A useful book for beginners is authored by Ernest Chan, called Algorithmic Trading: Winning Strategies and Their Rationale. The book covers everything from backtesting to trading strategies. And for more depth on trading strategies check out Algorithmic Trading and DMA: An introduction to Direct Access Trading Strategies by Barry Johnson. (DMA stands for direct market access.)
- Udemy runs an algo trading course which is frequently the subject of special offers, so can cost as little as £13.99 (92% off recommended price). The course is a bit more of a deep dive for those at a beginner-intermediate level, with an introduction to programming in basic MQL4. But by the end of the course, you will have created your first bot from the bottom up.
Algorithmic Trading Pros & Cons
- Fully automated trading is ideal for passive investing
- Guards against common errors associated with investor psychology
- Computers and their software never sleep – you can research and monitor the financial markets 24/7
- The most flexible trading system will enable you to adjust your trading systems to meet you specific goals
- Most platforms will offer a demo account funded with virtual money that you can use to practice and learn before committing real money
- Choice of signals or bots. Broadly, signals are for research and for the investor to act on annually while bots will execute according to the algorithmic rules
- Most trading systems – algorithmic or otherwise – lose money in the long run.
- Difficult to verify the claimed success rates of bots and their providers
- Contracts for difference instruments which are used by many of the brokers in this space provides exposure to price movements of an underlying asset but not direct ownership
- Trading attracts scammers and fraudsters so always check company registrations with financial authorities in various jurisdictions
How to Start Algorithmic Trading
If you want to start trading as soon as possible, eToro is a good place to start. Its platform is easy to use and costs are low. It also regulated by the UK Financial Conduct Authority. Additionally, eToro provides unparalleled transparency because of its CopyTrader feature
Step 1: Open an account
67% of retail investor accounts lose money when trading CFDs with this provider.
Government-issued ID such as passport or driver s licence and a recent utility bill or bank statement.
Fill in your personal details and upload photos of the government ID documents.
Step 2: Fund your account
- Debit/credit cards
- Bank transfer
The minimum funding is $200. If you wish to fund a CopyPortfolio or Market Portfolio the minimum is $5,000.
Step 3. Find a CopyPortfolio
Choose the CopyPortfolio that matches your goals and risk profile. Remember, you can choose between those that follow a collection of TopTraders and those (Market Portfolios) that hold products, such as stock CFDs, forex, commodities, bonds, and ETFs. Notably. ETF trading has grown in popularity immensely over the past few years.
67% of retail investor accounts lose money when trading CFDs with this provider.
For example, the AITrader50 CopyPortfolio has the following methodology and mandate: “[it] employs Microsoft’s advanced machine-learning technology and social trading algorithms developed by eToro’s data scientists and PhD mathematics specialists. This CopyPortfolio harnesses the wisdom of the crowds, creating an algorithm that selects from the 50 traders most likely to generate a positive return over the next month.”
Portfolio (and trader) performance is transparent, as seen in the table of historic returns shown above.
To follow a copy trader requires a $200 minimum but for the CopyPortfolios it is $5,000.
Portfolio value cannot fall below the minimum level of $250 with CopyPortfolios.
The Algorithmic Trading UK Guide 2021 arms the growing crowd of investors turning to automated solutions with a comprehensive overview.
Algo trading is the closest the retail investor can get to the world of the hedge funds and trading firms’ “quant”-driven software systems and high-frequency trading computing power. Now ordinary investors too can take the emotion and psychology out of investment and trading decision making while those who want more control can find plenty of options for just that.
Provided you follow the sensible due dilligence covered in this algorithmic trading UK guide it should keep you well away from the bad actors and criminals. Always check the address, registration, and regulatory authorisation of the provider, in particular, that it is regulation by the UK Financial Conduct Authority. Fully research your chosen platform or software before parting with your cash.
If you want to get up and running quickly and with minimum fuss plus the peace of mind of a regulated and established company, then eToro is a good place to start.
eToro’s Copy Trader or CopyPortfolio products bring the benefits of the passive investment style to retail investors. Its customers are able to access the power and refinement of computer-driven trading that was once the preserve of high net worth individuals and financial institutions.
eToro – Best Algorithmic Trading Platform UK
67% of retail investor accounts lose money when trading CFDs with this provider.
How can I build an algorithmic trading system?
The process of building an algo trading system from the ground-up can take many years. Before you get to that stage, you will first need to have a solid understanding of programming languages like Python. You will also need to have a firm understanding of the wider financial markets.
Does algorithmic trading guarantee profit?
There are no guarantees that your chosen algo trading system will make you money. On the contrary, there is every chance that you will lose money.
How can I avoid algorithmic trading scams?
There are many steps that you can take to ensure you do not become a victim of an algo trading scam. This includes performing enhanced research on the provider, finding a way to verify their historical trading results, and testing the system out via a demo account.