@Algo
An excellent study of the brokers! Yes, I think you qualify as an expert.
Though I posted several times in TJ but it bears repetition I believe-the issue of risk management, especially for people using AMI and N+, like me who want to go FULL auto way.
1) how these brokers manage slippage
2) how these brokers manage missed trades due to other reasons not due to the trader
3) how these brokers manage price mismatch (AMI signal and trade)
4) how these brokers manage wrong signals occasionally sent by AMI
5) how these brokers manage lot size mismatch in exit and entry trades (2 lots ordered, 1 traded but 2 squared)
Hope no one would guillotine me for the nagging repeats
After all, these events produce substantial erosion of profits, don't they?
PS: my broker has just given me an API(?) to mend a part of the fence which I will start testing on Monday. They say this may reduce some mismatches significantly:thumb:
Suppose much awaited and logical question that needs more clearer solution.
I wonder why no other big players have not answered these questions? Don't they have answers yet?
Some clarifications:
Brokers never manage anything that traders do. What these brokers are doing is they recommend the service provided by software companies like mine (
ValveNet Technologies) to the respective clients who are looking for similar kind of service. It is ultimately the traders responsibility to test and choose the service provider from whom they get better algo trading software.
in your question I'll replace "
THESE BROKERS" with "
ALGO TRADING SOFTWARES".
Now the time to give you my best answers, sorry for the very long ones, but the question needs more in depth understanding...
1) how these brokers manage slippage
ANALYSIS:
Again Brokers do nothing, they only offer you the facilities to execute your orders. Slippage is out of control. Nobody owns it. When you place a buy market order for xy price there are infinite chances that at the exact the same time 1000 of quantities of buy to be punched in the exchange server. Get to know about L3 data from exchange which give upper hand to big algo players.
There many factors liable for larger slippage.
1) Data Latency: how fast you receive the LTP from the exchange? How quickly you or your charting platform processes it?
2) Charting Performance: What is the time your strategy requires for calculating the
Entries &
Exits? Major algo traders don't use any charting application they just calculate the values and do the trading. Visual effects eats time & CPU resource which can be effectively used for other processes.
3) The signal transmission rate: how long does it take for a signal to be sent to your order execution API? How fast your API sends the orders to the server? What is the standard of your ISP? Are you using BSNL
???? Oops! or Airtel FTTH?
Most of these factors are technical put together under a single word "LATENCY".
SOLUTION (AS AN ALGO DEVELOPER):
1) Limit order: This is the only solution to those who trade with High Latency and very Poor-Medium trading system. But Limit orders raise the chances for other questions you have placed which I've explained below. If Limit Orders are used BUY for my price or don't BUY. Well your problem is solved, may be some orders might get missed? Unfortunately the best ones will be.
2) Strategy:
2.1) Are you sure your strategy will make profit if you have solution for all these problems?
2.2) Do you think these problems were not faced by traders by doing manual trading?
My answer to 2.2) is Not. I'll discuss about that on a separate topic.
Yes, but you can surely reduce the losses that are being made due to these factors if you have a solution. But at what cost? To overcome these hurdles as an individual trader your cost for proper infrastructure will atleast 2-3 times higher than the losses you make due to this.
2) how these brokers manage missed trades due to other reasons not due to the trader
ANALYSIS:
Actually I'm not clear with this question? Do you mean
1) orders missed due to powercut or internet problem? Basically when these events occur the orders are not at all send the exchange, usually they should exists only at your end.
SOLUTION:
In that case, our Professional Edition of Algo Trading software will check for order viability. IF They don't exists in the exchange it will be destroyed locally also. After killing it, if the API still receives order message then it will try send those orders again to the exchange, only if the power or internet is available.
4) how these brokers manage wrong signals occasionally sent by AMI
ANALYSIS:
I know which strategy you are talking about. To be frank, Destroy those strategies from your PC, just don't Trash them.
SOLUTION:
If you insist then, you should take care, while building your strategy, that these signals are verified properly. Alternative solutions is wait for the High/Low breakout or candle completion. Nothing special really, our common RoboTrade (Algo Trading software) plugin has got pre built options where you can choose whether to wait for the execution until "NEXT NEW CANDLE" is formed or wait till "HIGH OR LOW" of these spiking candles are broken.
5) how these brokers manage lot size mismatch in exit and entry trades (2 lots ordered, 1 traded but 2 squared)
ANALYSIS:
Not miss this, always the last one are the best ones. If you face this problem then definitely what you are using is not at all a professionally built software. Stay away from using. Any ALGO software built on FIX platform should be perfect in this regard.
SOLUTION:
Again, our Professional Edition will check for order viability. Open/Pending orders will be handled completely before placing the fresh orders.
As far as the other factors explained in (1) or (2) I don't think India has got that good infrastructure ready for individuals to take advantage of algo trading from home, unless monitored very frequently. In this regard the Algo Trading softwares are just budding. VPS/Dedicated servers are alternative solutions but again at what cost? How efficient your strategy is? Whats your tendency & Capacity?
So for an individual trader if you have a strategy that is good at picking the trades then you can make good profits, no matter whether you trade manually/automatically & if you miss good trades/bad trades. Will write about how to make a good strategy when time wishes.
I ALWAYS REGRET FOR THOSE WHO LOSE MONEY IN TRADING, BUT THAT'S WHAT TRADING IS ALL ABOUT.