Trading TechnologyDecember 19, 2021
Besides thinking about trading as a business, one other thing leads to success and that is the use of available trading technology in an efficient manner. We will talk about developing trading plans later on in this article, but for now let’s see what kind of technology will be available to you as a trader.
In the past, the available technology to the regular trader was limited to the phone, which they would proceed to negotiate an order with their broker, who then had to go and process the order with the floor trader directly at the exchange. Luckily today, regular traders have access to all the information technology that was only available for the exchanges in the past. Internet connection, digital markets, direct trading, fast and powerful computers, giving the trader a whole new world of information and faster, efficient trades. Technology advances all the time, so today we can completely automate trade, while new tools and platforms constantly are being created into existance.
Everything you need to start trading, regarding technology is a computer, high-speed Internet and trading software. Let’s talk about each individual part though.
Your main trading tool is your computer, this is where you will research the markets, create, test and execute trading plans. Ideally only used for trading, but realistically your computer will have tons of different types of applications running at any given moment.
If you don’t plan on having a dedicated trading computer, then proper protection is in order. You need to make sure that your computer is well protected from viruses and malware, so purchase or download a free anti-virus program that is well received from the online community. This will ensure that your computer is safe from malicious programs and applications.
As for hardware, you will benefit from high amounts of processing power and memory. There is no reason to overspend your budget though, unless you’re planning on scalp trading in which case it is very important to have a powerful computer. Another piece of hardware that can help your trading career is the monitor, rather monitors. Having multiple screens supports your overview of the markets you’re engaged in and their charts, thus increasing the amount of awareness you possess as an individual trader.
Both electricity and internet connections need to be stable in order for you to trade comfortably, so this means that for electricity it is wise to invest in a UPS and for internet to simply use a good provider and ether-net cables if possible.
Your computer should have the fastest processor and the maximum amount of memory that you can reasonably afford (the shorter-term your style of trading, the more important this becomes). If at all possible, your computer should be capable of supporting multiple monitors. Trading with two (or more) monitors gives you the “real estate” needed to view multiple markets and trading charts, while having a dedicated order entry window. This can improve your situational awareness and allow for more precision in your trading.
As a rule of thumb, all your connections – including keyboard, speakers, Internet and mouse – should be hardwired into the computer. In addition, it is a good idea to have a phone that still works even if the electricity is out. That way, you can call in an order to your broker if you have lost power. Keep your broker’s trading desk phone number in your speed dial and have your account information handy. Depending on the particular exchange, some of them will offer you to use their mobile applications, and we recommend that you do, simply because in the case of computer failure you could replace its function by temporarily using your mobile device.
Specialized trading software
This is the software that traders use to trade. Usually supplied by the exchange itself this software typically allows individual traders to analyze markets, test strategies and execute orders. These are the most important activities you will undertake as a trader and they will help you minimize the risk from trading and optimize your profits.
Analyzing markets requires you to look and customize charts, orders, quotes. Depending on your particular trade styles, you might need day to day analysis or real-time that constantly updates itself. The longer you plan on holding your investments, there is more value to find in day to day reports, conveniently named end-of-day reports. Short-term traders will not benefit much from these reports, but rather will rely on the real-time data stream that their trading software presents to them.
Testing, rather backtesting, multivariable and walkforward optimization, allows traders to test strategies with the highest precision possible. These options are basically simulators, running your test strategy against the historical background and development of your chosen market. The popular belief is that if a strategy worked (or would have worked) in the past, it is probably true that it will work in the future.
Last but not least, this specialized trading software has an interface that enables you to execute orders. While some exchanges feature very simple interfaces, most of them have enabled many different types of automation, from fully automated strategies to conditional orders. These usually support multiple different interfaces, with different kinds of charts and studies, presenting a challenge for newcomers to the world of trade.
Fortunately there are a lot of opportunities to participate in simulated marketplaces which allow these new traders to gain unique and relevant trading experience, as close to real as possible. It’s important to remember though that these experiences are simulated and it’s not a complete counterpart of the real feelings and can present the new trader with an unrealistic projection of profit. Regardless, this is a good way to get acquainted with the markets and trading software, especially if combined with relevant strategy.
Usually in the world of brokers and stock exchanges, this software is being sold or leased out for a monthly payment, but in the world of cryptocurrencies due to the nature of block-chain technology all the information is stored publically in the digital ledgers. This single fact means that availability of information is free and most exchanges just charge small commissions on your trades, compared to $15 to $35 per trade on traditional markets or 1-10% commission per trade for the brokers necessary to facilitate your orders to the exchange. This is a huge benefit as it completely eliminates market barriers for entry and you can participate with minimal funds invested.
Brokers are essential in the regular stock and commodity markets, but they are not that important when taking cryptocurrencies in perspective. This is because with bitcoin and altcoin you can trade directly on the exchanges, eliminating the need for a broker.
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