Tuesday, 3 April 2018

How Algorithms Are Shaping Futures Trading


Algorithms have assumed control over the investing scene. One late gauge by many company claims that nowadays, only 10 percent of all exchanges available are finished by people picking stocks; the rest are specifically or by implication done via automated programs. These algorithms have just significantly affected market costs and speculator conduct, including streak crashes that unfurl because of algorithmic selloffs working from other algorithmic selloffs.
But what effect could these algorithms have on the future of futures trading?


Futures Trading in a Nutshell

In some ways, exchanging prospects works like exchanging some other speculation resource or security. There are particular stages committed to fates exchanging, and numerous business stages permit prospects exchanging too. Be that as it may, rather than purchasing or offering a ware or security specifically, fates exchanging enables clients to put contracts, which manage the purchasing or offering of a particular amount of a particular resource at a foreordained cost at a foreordained date later on. For instance, if a benefit is right now exchanging for $50 and you think the cost of the advantage will fall essentially, you could put an agreement to offer the benefit for $45 in 3 months. On the off chance that the value tumbles to $35, you can even now offer for $45, and make much more benefit than you generally would.

Prospects exchanging is frequently used to support chance, securing financial specialists against sharp value diminishes or other capricious movement. They're additionally utilized for theory, enabling speculators to put down wagers on where they figure an advantage will move later on.

The Effects of Algorithmic Trading

Algorithmic trading comes in many different varieties, but it’s ultimately used to automate the process of buying and selling commodities and securities. Sometimes, these algorithms forecast momentum to predict price changes and act accordingly. Other times, they use combinations of company valuation and trader psychology to place bets.

In almost all cases, algorithms act without human intervention and engage in high-frequency trading. And because so many algorithms act on the same cues, it’s easy for them to produce a cascading effect that sends ripples through the market.

·         Volatility. First, the high-frequency trading done by algorithms makes the market much more volatile. There are big upturns and downturns as a result of prices being pushed around by high-frequency trading. This makes the market a bit riskier—or a bit more exciting—for futures traders, depending on who you ask. 
·         Regulations. Algorithmic trading is also inciting more trading regulation, in part because automated trading could have such a pronounced effect on the market (and therefore the economy at large). This could make it harder for futures traders to make trades or use algorithms to enhance their profitability. 
·         Liquidity. Algorithmic behaviour is influenced by liquidity, and vice versa. During off hours, when liquidity is much lower, algorithms have more propensities to take action, and have far more influence over the price of different commodities and securities. Accordingly, more futures traders are sticking to trading during periods of high liquidity as a way to mitigate this volatility.  
·         Accessibility and appeal. Finally, algorithms are changing how investors see futures trading. For some investors, algorithms are the safest bet to guard against market changes; they see futures trading and other riskier strategies as obsolete. For others, algorithms make the game more exciting, and they’re more likely to jump head-first into high-frequency trades as a result. 

Will futures trading disappear? Almost certainly not. But trading algorithms have already forged a strong position for themselves, and it’s unlikely they’ll do anything but become more prominent in the years to come. If you’re planning on getting into futures trading, or if you’re already a futures trader wondering what’s in store for you next, you need to be aware of these effects, and adapt your strategy accordingly. 


Prerna Agarwal
Assistant Professor
Computer Science & Engineering

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