How to Choose the Right Market for Automated Trading

I am sure you still remember how many times you changed and tried to trade different markets on simulated account before you first started the real trading. To such elementary question is not possible to give one answer to fit all traders. Of course I was in the same situation too and in this article I ´d like to sort out my views on markets appropriate for automated strategies. Giving my own personal opinion based on my years of experience and also fitting to our strategies we are developing.

All financial markets in the world are traded by computerized systems today with one of the mostly ATS penetrated market is US futures market.

A more detailed breakdown of automated trading in futures products is provided in Table 3 below. I am showing the research presented by Richard Haynes and John Roberts (senior research analyst and research analyst of CFTC) which covers period between end of 2012 till end of 2014. Mostly over 50% of liquid US future markets are traded by ATS (Automated Trading Systems), but still it is lower penetration than often pronounced 80% or more, with exception of FX.


Most appropriate  for this ATS category is trading of following US markets:

  1. Forex/FX futures
  2. Individual shares/equities or ETFs
  3. US Treasury
  4. Futures (non currencies)


I don´t trade Forex at all. Building the strategies against the broker itself, in Forex unregulated market, makes no sense for me.

Beside that, fundamentals for Forex/FX futures could be ANYTHING. From political issues, economy, local tensions or incidents, international contracts, natural or accidental disasters and many others. All globally and 24/7/365 with Asian, Euro and US peak periods in night and day.

Penetration of ATS in Forex/FX markets is highest in all industry and I believe the conditions here are super-fast changing, giving a little chance for extended life of an automated system here.

Of course I have tried to develop systems here for  better diversification of my portfolios, but never get the results I´d like to trade in my real account. The same way, all my friends-traders never mentioned any stable Forex/FX system they trade.



Interesting category. Thousands of individual stocks and ETFs listed in organized US exchanges give great space for automated trading. The biggest companiess are traded in great volumes which outpaces even those of the biggest futures.

The disadvantage here is the lower leverage and possible higher commission.

The leverage could be solved by broker itself, allowing the bigger accounts to trade in higher leverage. F.i. T-Margin account in Interactive Brokers available from balance of $100,000 with 6x leverage.

Clever commission plan is also important here, because for average intraday profit of let´s say $300 you need to trade hundreds of shares in each trade.

I consider this category suitable for bigger accounts or for very conservative traders targeting lower profits with lower volatility in the account.


3. US TREASURY class of products

Proper class of products for ATS.

As a big advantage I consider the fact that US Treasury are inversely correlated to the stocks and indexes. Thus they could be traded long-side with similar effect to shorting indexes/equities. Could be nice element of broadly diversified portfolios.

The disadvantage is one of the most expensive 1 tick move cost from all US futures. I have good reason to use Market Orders in my strategies, which guarantee my orders to be filled. Other side of the coin brings along 1 tick slippage in most cases. And it makes the difference when 1 tick + 1 tick round turn trade makes $10 or $20 in most US futures, but $31 or $62 in most US treasuries.


4. US Futures (non FX)

My most favourite class. As I already mentioned I use mostly just Market Orders in my strategies. To minimize the trade slippage I am selecting the markets with reasonable volume/liquidity. Best when daily volume is over 150,000 contracts traded.

A. Indexes futures

I trade @ES, @YM, @TF and @EMD markets.

a/ @ES. Most liquid futures market, slippage is not an issue here. Dark side is $12.5 one tick move, which makes RT slippage $25

b/ @YM. Enough liquidity, 1 tick move $5 only.

c/ @TF. Futures with nice intraday moves. Tick size move reduces from $10 to $5 since Dec. 2016. Enough volume. Dark side is the expensive data of ICE exchange, over $100 monthly.

d/ @EMD. Nice intraday moves, the liquidity, daily volume is the issue here. I count with 1.5 to 2.0 ticks slippage. With $10 one tick move makes it first place in trade expenses. Slippage $30 RT at least.

B. Energy futures

I trade @CL, @QM, @RB and @HO markets. My most favourite category of all markets. 

Physical commodity with strong worldwide demand makes these futures less vulnerable to manipulated trades than Equity Indexes futures.

@RB and @HO could have lower liquidity sometimes, adding 1 tick slippage to a side of the trade sometimes.

C. agriculture futures

Nice category, very good for diversification. Trading Soybean futures, @S, as the volume could be the issue in other products in this category.

D. Metal futures

Nice category too, especially the precious metals with proper liquidity. Other metals they also have limited daily volume for market orders.

I am trading Gold futures, @GC here.



Along the years I have tried many other US and non US markets for developing strategies with mixed results. My developing process is extremely robust, needs long history of high-quality data, markets with enough volume, executions from my servers in USA with delay of low fractions of millisecond. That puts serious limits to market selection for our ATS.


C O N C L U S I O N 

Best works for me the portfolio of automated systems trading US futures for energy, indexes, agriculture and precious metals. 

It makes four different and uncorrelated classes of high liquid and easy accessible trading products. I can start to build here from an effective portfolio with 3 automated systems in 2-3 classes up to the broadly diversified and really big portfolio with tens of excellent automated systems and great potential. And this is what I really do, having satisfied clients in more than 20 countries worldwide.


Oldrich Karas

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