What is Algorithmic Trading for US Stocks

Algo trading uses a computer program that follows a defined set of instructions (an algorithm) to place a trade. The algorithm could define variables such as timing, price, volume, or any mathematical model. The computer program will automatically monitor stock prices and place buy and sell orders when defined conditions are met.

 

 

The algo orders you can place with Moomoo include TWAP and VWAP orders.

A TWAP order splits one large order into smaller orders based on the TWAP (Time-Weighted Average Price) Algorithm that aims to achieve an execution price close to the intraday market TWAP over a defined time period.

A VWAP order splits one large order into smaller orders based on the VWAP (Volume-Weighted Average Price) Algorithm that aims to achieve an execution price close to the intraday market VWAP over a defined time period.

 

 

You can see TWAP and VWAP orders in the drop-down box in the Moomoo app when placing an order for a US stock symbol.

There are two price types available for the two order types, i.e. "LMT" and "MKT".

If you want the order to be executed at the limit price, please select "LMT"; if you want the order to be executed at the market price, please select "MKT".

*The above pictures are for illustration purposes only and do not constitute investment advice.

 

● Select the price type, enter the price (no need to enter if you select "MKT"), enter the quantity, and set the start time and end time of execution;

● Tap "Buy" or "Sell", then you can successfully submit the order.

● Select the price type, enter the price (no need to enter if you select "MKT"), enter the quantity, set the start time and end time of execution, and enter the maximum participation ratio;

● Tap "Buy" or "Sell", then you can successfully submit the order.

 

 

We may adjust the scope of products available for algo orders from time to time, and the availability of algo orders for a particular product shall be determined by what is described on the page when placing an order.

 

 

There is no additional charge for US stocks.

 

 

Moomoo Financial Inc. is providing you with the following statement to alert you of certain risk factors associated with investing in algorithmic trading. For purposes of this disclosure, "algorithmic trading" means the use of computer algorithms to automatically execute trading strategies. While it offers potential advantages, it also carries significant risks. Although not an exhaustive list, here are some risk factors that need to be considered with algo trading:

1. Market Risk Algo trading strategies are exposed to market fluctuations. Sudden changes in market conditions can lead to substantial losses. These strategies might not perform as expected during volatile or illiquid market conditions.

2. Liquidity Risk In times of market stress, liquidity may decrease, making it difficult to execute trades at desired prices. This can lead to significant financial losses as the execution of orders might be delayed or only partially filled.

3. Execution Risk Algorithms may not always execute trades at optimal prices due to delays, market impact, or slippage. This could result in orders not being filled or only partially filled, affecting the performance of the trading strategy.

4. Technology Risk Algorithmic trading relies heavily on technology. Hardware failures, software bugs, network outages, or cyberattacks can disrupt trading activities, potentially resulting in financial losses.

5. Model Risk Algo trading strategies rely on models based on historical data and assumptions. If the model’s assumptions are incorrect or market conditions change, the strategy may underperform or incur losses.

6. Strategy Risk Algorithmic strategies can be complex and may not perform as expected under all market conditions. Strategies that work well in certain conditions may fail in others, leading to potential losses.

7. Back testing Limitations Back testing uses historical data to test strategies, but past performance is not indicative of future results. Market conditions can change, rendering back tested models less effective.

8. Overfitting There is a risk that algorithms are overly optimized to historical data, capturing noise rather than underlying patterns. This can lead to poor real-time performance.

9. Human Error Despite automation, human errors in the design, implementation, monitoring, and maintenance of algorithms can result in significant financial losses.

10. Regulatory Risk Changes in regulations or enforcement actions by regulatory authorities can impact the effectiveness and legality of algorithmic trading strategies. Staying informed about and compliant with current regulations is crucial.

11. Diversification Diversifying across different algorithms, asset classes, and market conditions can help mitigate some of the risks associated with algorithmic trading.

12.Regular Monitoring Continuous monitoring and periodic review of algorithmic strategies and their performance are essential to identify and address issues promptly.

13. Robust Infrastructure Ensuring a reliable and secure technological infrastructure can reduce the risk of technical failures and cyberattacks.

14. Compliance and Regulation Staying informed about and compliant with current regulations can mitigate regulatory risks. It is important to be aware of the legal environment in which you are operating.

15. Be cautious of claims of large profits from algorithmic trading. Be cautious of advertisements or other statements that emphasize the potential for large profits in algorithmic trading. While algorithmic trading can potentially lead to profits, it can also result in large and immediate financial losses.

16. Algorithmic trading requires extensive market knowledge. Algorithmic trading requires an in-depth understanding of the securities markets, trading techniques, and strategies. In attempting to profit through algorithmic trading, you must compete with professional, licensed traders employed by securities firms. It is important to have appropriate experience and knowledge before engaging in algorithmic trading.

17. Understand the firm's operations. You should be familiar with a securities firm's business practices, including the operation of the firm's order execution systems and procedures. Under certain market conditions, you may find it difficult or impossible to liquidate a position quickly at a reasonable price. This can occur, for example, when the market for a stock suddenly drops, or if trading is halted due to recent news events or unusual trading activity. The more volatile a stock is, the greater the likelihood that problems may be encountered in executing a transaction. In addition to normal market risks, you may experience losses due to system failures.

18. Algorithmic trading generates substantial commissions and fees. Algorithmic trading often involves high-frequency trading and generally incurs commissions and fees on every trade. The total daily commissions and fees that you pay on your trades can increase your losses or significantly reduce your earnings.

19. Trading on margin or using leverage can amplify losses. When you trade on margin or use leverage, you can lose more than the funds you originally placed at risk. A decline in the value of the securities that are purchased may require you to provide additional funds to the firm to avoid the forced sale of those securities or other securities in your account. Using leverage as part of your trading strategy may lead to extraordinary losses.