Tutorial on Python Algorithmic Trading with the FXCM Broker

As the utilisation of technological solutions becomes increasingly prevalent among businesses and financial institutions, the strategic advantage of doing so has become increasingly evident. One of the most prominent tools for this purpose is Python, which is quickly becoming one of the most ubiquitous programming languages used in the financial technology industry. The predictive and forecasting capabilities of Python-based algorithmic trading have caused a stir in the financial technology sector, as its potential to generate profit is becoming more and more apparent.

This post will explain how to use the Python programming language and the FXCM broker platform for algorithmic trading.

Trading algorithms include what?

Quantitative trading, also referred to as algorithmic trading, is the application of mathematical and statistical models to financial markets. This area of the financial technology industry is notoriously complex and challenging to manoeuvre.

Python’s algorithmic trading framework provides investors with the opportunity to automate their trades using computer programs. This technology also allows investors to monitor fluctuations in the underlying market, enabling them to make more informed decisions regarding their investments.

Once the market fulfills the criteria set by the algorithm, a buy or sell order will be placed automatically. This approach allows for a rapid examination of the market and automated execution of trades.

Varieties of Algorithmic Trading Techniques

In order to maximise the effectiveness of algorithmic trading, it is essential to identify lucrative opportunities that can be capitalised upon. Examples of quantitative trading strategies that can be employed include, but are not limited to, trend following, mean reversion, arbitrage, and high-frequency trading. Each of these strategies has its own unique advantages, and selecting the best option for a given situation will depend on the market conditions and the individual investor’s goals.

  1. Techniques based on observing trends

    In algorithmic trading, the most popular tactic is to identify and capitalise on market trends. Traders pay close attention to chart patterns, such as channel breakouts, moving averages, and price level fluctuations, as well as other relevant technical indicators, in order to identify and track these trends. As these tendencies are more easily amenable to automation, traders often do not need to use price forecasts or projections. The typical time frame for following trends is between 50 and 200 days.
  2. Possibilities for arbitrage

    Investors may take advantage of price discrepancies in securities listed on two different exchanges to generate a profit through arbitrage. By purchasing the stock at a lower price on one exchange and selling it at a higher price on the other, investors are able to capitalise on the difference in price. To capitalise on this opportunity, investors may employ algorithms to identify profitable openings.
  3. Corrections to Index Fund Weightings

    Index fund rebalancing is becoming increasingly popular as a form of algorithmic trading. This process involves aligning the holdings of an index fund with its benchmark index, typically resulting in a profit of between 30 and 80 basis points. Rebalancing times vary depending on the number of stocks in the index fund.
  4. Using Mathematics

    Options and securities trading can be accomplished through the utilisation of the delta-neutral trading technique. This strategy is comprised of several components, in which the positive and negative ratios are balanced against each other. Furthermore, it takes into account the relative changes in the prices of assets.
  5. The tendency to revert to the mean

    The mean reversion approach is based on the high and low prices of an asset. Traders may automate trading operations when the price of an asset experiences significant fluctuations outside of a predetermined range. To achieve this, they must identify and define the relevant range by utilising an algorithm.
  6. VWAP

    The Volume Weighted Average Price (VWAP) approach is a strategy which allows investors to break down large orders into smaller pieces and then execute them in the market at real-time prices that reflect the historical volume characteristics of the asset in question. By following this tactic, investors can expect their order to be filled at or near the asset’s volume weighted average price.
  7. TWAP

    Time Weighted Average Pricing (TWAP) is a type of pricing mechanism that aims to break up large orders into smaller, more manageable portions. This is done by allocating the order to different time periods throughout the trading session, from the start to the end. Using TWAP, the order is automatically executed at an average price over the specified period, thus minimising its effect on the market.
  8. Falling short in implementation

    The objective of trading in the spot market is to minimise the implementation shortfall of an order. When the stock price increases, this leads to an increase in the desired involvement rate, and conversely, when the stock price decreases, it results in a decrease in the desired involvement rate.

Explain the role of the FXCM broker.

Forex Capital Markets (FXCM) is widely recognised as the premier online destination for Contract for Difference (CFD) trading, foreign exchange (forex) trading, spread betting, and other associated services. FXCM is an acronym for Forex Exchange Capital Markets and relates to the Forex Capital Markets, a retail forex trading broker. In addition, traders can also access CFDs on key indices, as well as speculate on the foreign currency market, through the FXCM platform.

FXCM broker offers a suite of innovative tools, world-class trading instructors, and a top-of-the-line online trading platform, giving traders access to the deepest markets. Furthermore, they provide a real-time trading experience from any mobile device with just a few clicks.

APIs for FXCM Trading

Application Programming Interfaces (APIs) provide a secure and reliable protocol for the exchange of data between programs, enabling the development of innovative and useful applications. At FXCM, we offer access to four free APIs:

  • Representational State Transfer Application Programming Interface
  • Standardised FIX Application Programming Interface
  • Interface to the Java Platform
  • Programming Interface for the ForexConnect

The FXCM trading server is immediately accessible from each of them.

The Use of a RESTful Application Programming Interface

The Representational State Transfer (REST) Application Programming Interface (API) has been designed with algorithmic trading in mind, providing a web-based API that facilitates communication between a server and a client via a WebSocket connection. Additionally, the platform provided by FXCM Brokerage enables the development of specialised trading software that can be seamlessly integrated into the main platform.

OAuth 2.0 is an authentication protocol which enables secure access to resources through token-based authentication. FXCM utilises this protocol to provide an extra layer of security to their applications, and supports the integration of hybrid programs, making the authentication process more seamless. The protocol also enables FXCM to stream JSON data through the socket.io library, providing users with real-time updates.

Software Development Kit for the Financial Industry Xchange

The FIX Application Programming Interface (API) is an industry-standard protocol for the exchange of financial data, providing users with the capability to deliver up to 250 price changes per second. This protocol is widely used across the financial services industry, allowing for rapid and secure transmission of market data.

Java Application Programming Interface

The FXCM trading platform is accessible through a Java Application Programming Interface (API), which is a wrapper Software Development Kit (SDK) of the Financial Information eXchange (FIX) API and provides a fully functional and modifiable API. This API is lightweight, extensible and works with any Operating System (OS) compatible with the Java language.

Forex Connect API

The ForexConnect API provides a range of features to aid in efficient position management, including live price streaming, order management, the ability to download historical instrument rates, and the retrieval of account reports. These features enable users to maximise the potential of their trading activities.

Robotic trading with FXCM broker

The Foreign Exchange (FX) Capital Markets (FXCM) broker platform offers a wide array of Application Programming Interfaces (APIs), however the Representational State Transfer (REST) API is especially noteworthy for its practicality. Python programmers have found fxcmpy to be an especially valuable resource due to its robust Python package that enables full access to the REST API via a variety of classes. These classes offer a simple and straightforward way for Python to interact with the REST API at a higher level.

Algorithmic traders may take use of fxcmpy thanks to its compatibility with Python and the availability of several FX and DFC Python wrappers.

Steps for using an algo with FXCM broker are as follows:

  • Make a token for the API at no cost.
  • Sign up at no cost now and start using your new account immediately.
  • To generate a token, go to the menu bar at the top of the FXCM interface and click the “Token Management” link.

Python is a programming language with an immense amount of potential in the financial technology industry. Its ability to enable algorithmic trading has led to its increased popularity in the sector, and it is now being seen as an essential tool for developing alternative trading systems. We suggest that those looking to maximise algorithmic trading in their next project to consider incorporating the capabilities of Python into their design. Doing so can open up a world of possibilities for their financial technology endeavours.

Join the Top 1% of Remote Developers and Designers

Works connects the top 1% of remote developers and designers with the leading brands and startups around the world. We focus on sophisticated, challenging tier-one projects which require highly skilled talent and problem solvers.
seasoned project manager reviewing remote software engineer's progress on software development project, hired from Works blog.join_marketplace.your_wayexperienced remote UI / UX designer working remotely at home while working on UI / UX & product design projects on Works blog.join_marketplace.freelance_jobs