Forex hedging with the use of algorithms

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Updated: 13 April 2020

Trading with an algorithm, or algo trading, is essential when it comes to successful trading strategies in the 21st century. Whether you want to learn CFDs, forex or any other market, strategies are key to reducing losses and increasing gains. Algorithms can also be used in conjunction with hedge funds to indicate forex signals.

Many traders believe that large hedge funds are the most successful, but small hedge funds can work just as well when used correctly. This means your algorithms do not need to be complicated and highly advanced – a simple approach is best for small hedge funds when combined with a winning strategy.

Technology currently allows for anyone to implement efficient algorithm signals into their trading strategies without extensive knowledge or advanced software. Popular platforms like MetaTrader 4 allow you to compile your own algorithms through the use of the MQL function, as well as many other websites and programs.

The Quantopian program also gives traders the opportunity to create their own algorithms based on research and personal goals and then back-test the algorithm before implementing it into live trades. This makes these promising strategies highly accessible to traders of all levels and increases the chances of profitable trading.

Small, successful hedge funds

There are several small hedge funds that have overtaken larger funds that were built on years of experience. One of these is Mumbai-based Sharekhan Limited, which produced a profit of 150% in only six years of trading. This average return of 25% each year exceeds that of many larger funds, which can be seen from a variety of data results. During the period from 2006 to 2012, the hedge fund industry had an average return of 30%. This speaks volumes for those looking for forex advice when it comes to small hedge funds based on algorithms and the prospects that lie within this strategy.

Sharekhan Limited’s history

When Sharekhan Limited was founded in 2000 by Shripal Morakhia, they offered share-only trading hedge funds. Since then, they have extended their range of services to include more financial instruments, such as forex trading, as well as brokerage for those looking to trade individually. The priority at Sharekhan Limited remains the management of funds and trading on behalf of clients.

Automated trading signals are used for strategies in both short-term and mid-term trend trading. This largely explains how they managed to stay successful through the difficult hedge fund industry conditions of 2008 and 2011. In these years, two major stock market crashes occurred, resulting in financial crises in markets around the world. These incidents were detrimental to many larger hedge funds as they tend to follow long-term trends.

During this period, Sharekhan’s automated trading signals were focused on all things short-term, such as charts and time intervals. This allowed their trading signals to easily adjust to the fluctuations and change its bullish strategy to a bearish one on the stock market. As a result, the extreme losses experienced by most other hedge funds were avoided, leaving Sharekhan with profits instead.

Examples such as this one prove that trading with a smaller hedge fund can often be more successful and profitable than with a large hedge fund. To a great extent, this is due to the use of basic and intuitive automated trading software rather than over-complicated strategies by using the latest, most advanced technology. These smaller hedge funds make it easier to adapt to a variety of changes and different situations. As in the case of Sharekhan Limited’s experience with market crashes, this can make all the difference between devastating losses and redeeming profits.