Market Information
Sao Paulo Stock Exchange
Algorithms
In these modern times , it feels as if everything ( and sometimes , everyone ) is being replaced by electronics and computers . �e relentless march of automation and advances in the technological realm continue to make their presence felt in all spheres of life . �e nancial industry is no exception . Algorithms have changed the way investors are trading on the stock market and it has made the process incredibly efficient … and made navigating the markets increasingly difficult for even an experienced trader . In terms of trading , what is an algorithm ? In the simplest terms , it is a set of rules that a computer will follow . Trading algorithms can be very simple . For example – the price of maize is R 3500 for buyers , and R 3600 for sellers . You can write a set of rules that will tell the computer to buy maize if the selling price is R 3550 . �e computer will then monitor the price and execute the buying order if the seller price is R3550 . �e main advantage of execution algorithms is their speed . �e algorithm reacts faster to emerging information than the human eye can blink – o�en in a timespan measured in microseconds - putting the advantage square in the hands of the brokers and traders that cra� specialised execution algorithms . Algorithms have become increasingly complex , requiring more and more effort to be devoted to understanding and properly implementing them . An algorithm is not a magical incantation , an esoteric knowledge hidden from mortal men . It is merely a set of rules . Written by a human , an algorithm can only be as good as the team that designs it . And in the modern world and in the ercely competitive environment present in today ' s market , this is a moving target as you constantly have to be ahead of the curve . Owing to their nature , algorithms can be as generalised or a specialised as the trader requires , o�en being able to be tailored to meet a speci c need . �e following are very basic algorithms that showcase the endless possibility that they offer : Iceberg – An order-based Algorithm that only “ shows ” the tip of the order to the market hiding the rest . Instead of placing a large order on the market , an Iceberg algorithm instead breaks it into various smaller orders , to avoid telegraphing the trader ' s true intention . Sniper – An algorithm that never shows buy or sell orders , but instead trades against online orders in the market , taking advantage of its faster speed to nd better deals than a trader can react to on their own . Sniffer Dog - �e algorithm that looks for other algorithms ! Also known as a “ sniffer ”, this algorithm rapidly res orders into the market to “ sniff-out ” trading patterns and
responses that would indicate not only the presence of other algorithms , but also the terms under which they operate . It is estimated that 75 % of the day-to-day trading volume in today ' s global markets is driven by algorithms . Yet in the African commodity markets that gure hovers at an estimated 15 %. While algorithms are frequently becoming more common ( as more and more brokers and traders wake up to the bene ts of these trading tools ), they remain sorely underutilised … and sometimes misunderstood . Taking that into account , why not take advantage of a team that not only understands the importance of algorithms in the modern trading space , but has years of experience in both their design , and their use ? Russellstone International is a member of the Johannesburg Stock Exchange , a commodity broking rm , and a leader in the eld of developing execution algorithms , particularly in African markets . Our aim is to continue to improve on our existing knowledge , design and implementation of algorithms , and to offer you the opportunity to take advantage of them yourselves .
Craig Robinson Director Russellstone International ( PTY ) Ltd
November - December 2016
FARMERS
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