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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