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Introduction to Algo Trading by Rivas

Jun 29, 2024

Introduction to Algo Trading by Rivas

Topics Covered

  1. What is Algo Trading
  2. Prerequisites for Algo Trading
  3. Programming Languages for Algo Trading
  4. Brokers Providing APIs for Algo Trading
  5. Costs Involved in Algo Trading
  6. Subscription to Zerodha Trading APIs
  7. Types of APIs for Trading
  8. Basic Design of an Algo System
  9. Installing Python and Zerodha SDK
  10. Sample Python Program for Login Flow
  11. Risks Involved in Algorithmic Trading

What is Algo Trading

  • Algorithmic trading (Algo Trading) is a program that trades on behalf of a human using predefined rules.
  • It interacts with broker APIs for placing orders, modifying orders, and exiting trades.
  • Can be semi-automated or fully automated.

Prerequisites for Algo Trading

  • Access to broker APIs for interacting with the backend system.
  • Some coding knowledge, preferably in Python for ease of use.
  • Understanding of trading indicators and basics.
  • Stable internet connection.

Programming Languages for Algo Trading

  • Popular languages: Java, C, C++, PHP, Python.
  • Python is suggested for ease of learning and extensive tutorials.
  • High-frequency trading might require faster languages like C++ or C#.

Brokers Providing APIs for Algo Trading

  • Popular brokers in India: Zerodha, Fires, Ally Blue, Stocks, Interactive Brokers, 5Paisa.
  • Importance of robust APIs and low latency from brokers.
  • Cost considerations: some brokers charge for APIs while some offer them for free.

Costs Involved in Algo Trading

  • Cloud costs: Approx. ₹15,000 to ₹1,00,000 per annum depending on system complexity.
  • Internet charges if running from a home PC.
  • Broker API charges: Example, Zerodha charges ₹2000/month for trading APIs.
  • Developer costs if you can’t code yourself.
  • Usual trading costs like brokerage, STT, GST.

Subscription to Zerodha Trading APIs

  • Access via developers.kite.trade/login.
  • Create a new app and authorize it with your Zerodha trading account.
  • Key steps: Provide client ID, redirect URL, and receive API key and secret.

Types of APIs for Trading

  • Login APIs: For initial authentication.
  • Instrument APIs: To fetch instrument details like symbols, strike prices, etc.
  • Order APIs: For placing, modifying, or canceling orders.
  • Quotes APIs: For current market data including price, volume, high/low.
  • Historical Data APIs: To fetch historical candlestick data.
  • Other APIs: For getting account positions, funds, etc.

Basic Design of an Algo System

  1. Login to Broker: Authenticate and receive access token.
  2. Fetch Instrument Data: Store for the session to use in trading activities.
  3. Initialize Ticker Service: For real-time market data (WebSocket preferred for high speed).
  4. Start Trading Strategy: Implement logic based on strategy rules.
  5. Order Management: Place and manage orders based on signals from the strategy.
  6. Monitor Orders and Positions: Continuously check and modify as required.
  7. Exit Trades: Close open positions by end of the day if intraday.

Installing Python and Zerodha SDK

  • Installing Python on Windows.
  • Use pip for package management (pip install commands).
  • Install Flask for creating a local server: pip install Flask.
  • Install Zerodha Kite Connect SDK: pip install kiteconnect.

Sample Python Program for Login Flow

  • Setup project structure with folders: src (for source code) and config (for configurations).
  • Example server and user config files in JSON format.
  • Python code for logging into Zerodha, handling redirects, and fetching positions and holdings.
  • Install necessary tools like Microsoft Visual C++ Build Tools if errors occur during package installation.

Steps in Sample Code

  1. Setup Flask Server: Create and start HTTP server using Flask.
  2. Handling Login Flow: Implement routes for login redirects and API interactions.
  3. Fetch Positions and Holdings: Example endpoints to call Zerodha APIs after authentication.

Risks Involved in Algorithmic Trading

  • Coding Errors: Small bugs can lead to significant losses.
  • Broker Issues: Platform outages can affect open positions and order placements.
  • Internet Connectivity: Loss of internet or power can affect trading algorithms running on a local machine.
  • Broker Order Handling: Sudden spikes or falls may cause exchange issues, order cancellations, etc.
  • Monitoring: Even fully automated systems need periodic checks to ensure smooth operations.

Conclusion

  • Next steps include further videos on placing orders and advanced API usage during market hours.
  • Importance of monitoring and handling risks in algorithmic trading.

Follow for further updates and inquiries: Twitter handle shared for ongoing support and question collection.

Full transcript