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From A Commodity Analyst To An Algorithmic Trader

Managing research work for commodities involves a day-to-day understanding and charting of the fluctuations in commodity prices. Considering the data that a research analyst pulls and manages every day, it is quite plausible that a commodity analyst is either a trader already and if not he would be keen to start. A few years back trading commodities was not heard of much. Today the scenario is quite different; there are overall nineteen commodity centric exchanges in India and we see a good surge in commodity trading. The price fluctuation may not be drastic when considering commodities, but consider being able to apply intraday trading to the same. If you take a look at the charts representing price fluctuations for gold, you will observe a minute price variation on an hourly basis and a substantial one for a longer period. Consider, being able to leverage these minute fluctuations and monetize them for yourself.

gold price graph

Source: http://www.moneycontrol.com/commodity/gold-price.html

The question that needs to be answered is how would you be able to monetize this price variation? Have you ever thought of trading via Algos? A yes would mean you are aware of the technical requirement. If the answer is no, let us take you through the basics of algorithmic trading first.

What is Algo trading?

Algorithmic trading (automated trading, black-box trading, or simply algo-trading) is the process of using computers programmed to follow a defined set of instructions for placing a trade in order to generate profits at a speed and frequency that is impossible for a human trader.

How does Algo Trading function?

Automated or Algorithmic trading is using computer programmes to generate trading signals, send orders and manage portfolios. Sophisticated electronic markets/platforms are used by the algorithms to trade in the similar fashion as done in electronic trading. The difference is that in algorithmic trading decisions about volume or size, timing and price are determined by the algorithm.

High-Frequency Trading (HFT) is a special category of algorithmic trading characterized by unusually brief position-holding periods, low-latency response times, and high trading volumes in a day. Algorithms are written so as to utilize trading opportunities which appear in very brief time periods as short as milli or microseconds. The margin of each trade is small, which is compensated by high speed and large volumes.

Why go for Algo-trading?

Consider being able to minimize your losses to a minimum by automating the buying and selling process. Accuracy and speed of transaction are increased manifolds, increasing your profit margin in turn. Your comfort level is increased because you don’t have to fret about the prices of your trade falling or skyrocketing while you sleep. You can backtest your strategies on historical data to be more secure, hence adhering to better risk management. All of that with an additional advantage of emotional discipline while trading and at the best possible speed. All you would need to do is automate them.

Here we have an example of a person who comes from the commodities market and is making the use of technology by having learned algorithmic trading. Mr. Vippinraj presently working as Regional Head -South for Reliance Commodities Limited, prior to that worked for Motilal Oswal in Commodity segment.

When he opted to go for the Executive Program in Algorithmic Trading™ from QuantInsti®, he was aware of the functionalities of the market and had acquired a strong aptitude towards trading. Read on to know more about his experience.

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