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Algorithmic Trading

What is algorithmic trading?

Algorithmic trading or ’algo trading‘ is a method of executing orders using automated pre-programmed trading instructions accounting for variables such as time, price, and volume.

What are the benefits of algorithmic trading?

Algorithmic trading can have many benefits. Most notably, algorithms make use of the speed and data processing advantages that computers have over human traders.

As a result, improved execution outcomes may be achieved saving you money.

  • Example 1 – Algorithmic trading can be used to reduce the market impact of large orders:
    • Higher value orders can be sliced up into smaller parcels thus reducing the signalling the orders would otherwise have.
  • Example 2 - Achieve the open or closing auction or “match” price.
    • Achieving the open or close target auction price can be difficult and time consuming when placing an order manually, as the equilibrium price can often move rapidly in a very short space of time.  Certain algorithmic orders have been designed to improve the likelihood of achieving this by automatically adjusting the price up or down in a very short period of time.
Which algorithmic strategies are available with CMC Markets?

Volume-weighted average price (VWAP) balances execution with expected trade volumes over a specified time period. As an example, a VWAP order may buy or sell a greater proportion of the order in the first and last hour of trade as typically there are more market transactions during those periods.

Time-weighted average price (TWAP) is a strategy of executing trades evenly over a specified time period. It is typically used for the execution of large orders while minimising the impact on the market price.

Target Open is a strategy that targets participation in the ASX Opening Price Auction up to a defined limit price. If there is unexecuted volume on the order after the ASX Opening Price Auction, the strategy will attempt to execute the balance of the order up to your limit price whilst minimising market impact.

Target Close is a strategy that targets participation in the ASX Closing Price Auction up to a defined limit price. This strategy may also execute part of its volume prior to the ASX Closing Price Auction if it is determined that this is required to minimise market impact for the ASX Closing Price Auction.

Learn more about the available strategies on our algorithmic trading page >

 

How can I access algorithmic trading?

To enable algorithmic trading, you will first need to agree to the terms & conditions of algorithmic trading. You can do this within ‘Trade Settings’ from the ‘Settings’ menu option on the top left-hand side of the platform. You can also access this directly from the order ticket under ’Instruction’, where you have not already enabled algorithmic trading.

 

How do I place an order using algorithmic trading?

We’ve integrated algorithmic trading into our existing order tickets for a seamless experience. You will have the option of making any order an algorithmic order by selecting an algorithmic strategy under ‘Instruction’ on the order ticket, so you’re in control of using algorithmic trading for any of your orders. 

View our handy step-by-step instructions covering how to place an order using the available strategies on our platforms.

Volume-weighted average price (VWAP)

Time-weight average price (TWAP)

Target Open

Target Close

Who are my algorithmic orders placed through?

We have integrated algorithmic trading with services provided by an external provider. When you submit an algorithmic order to CMC Markets Invest, we will send the order details (but no personal data) to the external provider, where the order will be processed and monitored against the market. The external provider will then instruct CMC Markets Invest when to execute the order on the market in small slices, with the aim of achieving the algorithm’s target goal. There is no guarantee that the actual market volume or time-weighted price will be achieved, as the distribution of market prices and volumes cannot be predicted in advance.

What are the fees associated with algorithmic trading?

The fee for using algorithmic trading is 0.03% (ex. GST) and is based on the traded value of the algorithmic order. It will not be charged until the algorithmic order has executed. It’s important to note that the fee amount will be reflected on your ‘available to trade’ balance based on your order value. The fee will appear on your trade confirmation under ’Other Fees‘ and added to the total cost for buys and deducted from the total return for sell trades.

 

Which platforms can I use algorithmic trading on?

You can enable and place algorithmic orders on our standard and Pro platforms. 

Can I use algorithmic trading for any stock?

Algorithmic trading can only be used to place orders on the top 200 ASX-listed stocks.

Is there a minimum order value for algorithmic trading?

Algorithmic trading is generally suited for larger value orders; however, there is no minimum order size set specifically for algorithmic trading. 

How does my algorithmic buy order impact my available funds?

Each algorithmic order has a price limit that must be set at time of order placement. While the order is open, your available funds will be reduced by the maximum possible trade consideration based on this trade limit. Once the algorithmic order is completed, a trade confirmation is issued for the exact consideration, which then is taken into account as a normal unsettled trade.

Can I amend an active algorithmic order?

You cannot amend an active algorithmic order. To make any changes to the algorithmic parameters, you will need to cancel the algorithmic order and replace it with an updated algorithmic order. If you would like to increase the size of your algorithmic order, you can also achieve this by placing the additional incremental portion as a new algorithmic order.

Can I place algorithmic orders if I settle to a margin lender?

Yes, provided it appears on your margin lender’s ‘Acceptable Securities’ list and you have available capacity in your margin loan. Your trade confirmation will be sent to your margin lender to settle, similar to the process for orders without an algorithmic strategy.

What is meant by an ‘I Would’ price?

For VWAP and TWAP orders, this allows customers to specify a price at which they would like the algorithm to attempt completion of the order. As an example, if you had an order to buy a stock at VWAP with a price limit of $20 and set an ’I Would’ price of $18, the order will attempt to execute VWAP at prices up to $20 for the duration of the period specified. If the price falls to $18 it would attempt to fill the order subject to available market volumes, even if it means that the order will be completed well before the specified end time.

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