Learn How Data Feeds Enhance Efficiency in Algorithmic Trading

Discover how real-time data feeds can benefit your trading strategies, also how real-time data enables faster decision-making, reduces errors, and maximises profits

The Role of Data Feeds in Algorithmic Trading

Traditionally, stock market trading relies on fundamental and technical research and of course, the gut instinct. However, when there is a need to execute large trades, it becomes a tedious process. Most importantly, the error margin can be high, resulting in losses. 

Algorithmic trading overcomes these drawbacks of manual trading. It depends on real-time data feeds to manage large trades more efficiently and quickly at the best possible price. Let’s first understand the concept and benefits of algorithmic trading before exploring the role of data feeds.

What is Algo Trading?

Algo trading is also known as automated trading or black-box trading. It refers to the use of coded programmes (algorithms) to execute trades automatically in the market without human intervention. These algorithms are a predetermined set of instructions or rules related to price, volume, quantity or timing. 

Algorithmic trading has the following advantages:

• Processes large volumes of data and trades at high speeds to leverage high-profit market opportunities
• Reduces trading errors by eliminating human bias
• Identifies markets patterns faster and with accuracy
• Saves trading time and thereby, leads to lower transaction costs

Importance of Data Feeds in Algo Trading

Data feeds are a prerequisite for algorithmic trading. Data feeds provide fast and low-latency stock market live data such as prices, volumes and other market parameters. This ultra-high update frequency data is crucial for traders to make real-time decisions to buy or sell. Data feeds ensure that there is a minimum time gap between information available for the algorithmic traders for decision-making. The more instant the information is, the quicker and more accurately trading can take place.

Data feed system collects gigabits of raw data every second from various stock exchanges, news releases, social media and other reliable sources from the web. It also processes market data, company data and global events. Moreover, data feeds also tap into historical data, past market behaviour and future trends to give a holistic view as far as possible. 

The algorithms fed into the system perform in-depth analysis through complex mathematical models based on this raw data. The system can also do sentiment analysis which is instrumental in gauging the opinion or consensus of investors about a specific stock in terms of risk.

If traders had to work with raw feeds, they would need a huge network infrastructure and computing resources which is complex, time-consuming and expensive. 

In a nutshell, data feeds offer the following benefits for algo trading:

• Highly reliable, faster and accurate data
• Continuous streaming of real-time data
• Identify the best trading opportunities
• Access to multiple data points in a single intuitive interface

When it comes to the question of how to use market depth in trading, data feeds can also provide information at level 1, level 2 and level 3.

Conclusion

The speed, quality and accuracy of data feeds are critical to the success of algorithmic trading. That’s why you should always source your data feeds from a reliable After-market stock data provider.

Global Financial Datafeeds is an authorised low latency real-time data vendor of Indian stock exchanges with more than a decade of expertise. Its NSE Stock Api data feed provides the fastest rate update in real-time.

Get in touch to know more.