Trading Fragmentation Methodology to Reduce the Capital Exposure with Algorithmic Trading

Abstract

This paper presents a practical methodology to reduce the capital exposure by early exits from the financial markets using algorithmic trading. The method called trading fragmentation uses several automated trading software applied on more unrelated markets and a particular risk management strategy to obtain a higher profit level with a lower risk. An advanced capital management procedure is used to integrate all into an unitary risk management system applied into a single trading account. It was found that the method presented here is the proper way to avoid large loss trades and to reduce the time when the capital is blocked into negative positions for the recovery process. In this way the efficiency of the capital usage is improved and the profit is made faster with lower risk level. The method was tested with real capital for more than five years and positive results were obtained. Comparative trading numbers will be also included in this paper in order to reveal the efficiency and the advantages obtained with the trading fragmentation methodology.

Keywords

• algorithmic trading
• capital exposure
• risk management
• trading fragmentation