Algorithmic trading has only recently become popular among Singaporean investors.
What’s more surprising is that this trend hasn’t caught on until now. After all, the advent of algorithmic trading dated back to the 1970s and was only popularised by hedge funds in the early 2000s. While there are many benefits to using algorithmic trading, one of these advantages is exploiting split-second market movements.
It works through computers running mathematical models explicitly designed to analyse different markets for those who don’t know. These mathematical models are called algorithms, hence ‘algorithmic trading’. Many studies have been conducted to explain the effectiveness of algorithmic trading. For example, an article published by John Griffin and Amin Shams in June 2018 found that the price manipulation on stock markets is accurate. What’s more, it was revealed that high-frequency traders are responsible for this market manipulation—through algorithms.
What does this have to do with me? As a Singaporean investor, should I get into algorithmic trading or not? An answer to that question could be formed by understanding how much daily volume is traded through algorithmic trading in Singapore. According to The Business Times’ report released earlier this year, there has been a significant increase in the number of algorithmic trades executed here.
A report released by the Monetary Authority of Singapore also revealed that this number has increased since Q2. However, a considerable volume is still being traded using human-based trade (i.e., not through algorithmic trading).
One reason could be that it’s almost impossible to predict how markets will function on any given day. Regardless of their experience, any person can fall prey to making mistakes when making decisions irrespective of what kind of market they’re investing in (i.e., small and big-cap companies, foreign or local companies). Algorithmic trading doesn’t factor in emotions. While there are many pros to using this kind of trading, it does take some time to get used to.
People interested in algorithmic trading could start by learning how to code. Even seminars are held at the Singapore Management University’s Singapore FinTech Festival, which promises to teach attendees the basics of coding and computer programming. Furthermore, this will allow them to understand better and appreciate what goes on behind the scenes when they’re investing through a particular service provider (e.g., an app or web portal).
Finally, we can’t help but mention that algorithmic trading doesn’t work for everyone as no guaranteed method or strategy can deliver consistent results with such trading. While many people, including the author above of this article, believe that algorithmic trading can’t be beaten by any other method out there, we’d like to leave the decision to be made by you.
Algorithmic trading in Singapore has increased rapidly over these past few months and years. Many people are now using algorithmic trading as a primary form of investing due to its accuracy and effectiveness at timing certain market behaviours. Furthermore, understanding how algorithmic trading works allows one to better appreciate what goes on behind the scenes when they’re investing through a particular service provider (e.g., an app or web portal). It isn’t always easy getting into algorithmic trading for anyone regardless of their experience, as no guaranteed method or strategy can deliver consistent results. However, with a better understanding of how coding and computer programming work, one might understand algorithmic trading better and even use it as a primary form of investing if one wishes to do so.
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