Subaccounts are Essential for Algorithmic Trading
The world of algorithmic trading is full of opportunities, but navigating it effectively requires a solid foundation in how to manage your assets. Enter subaccounts, a feature that may seem simple but can serve as a game-changer in maintaining organization and maximizing profits. This lesson dives into the importance of subaccounts in algorithmic trading on platforms like Signum.money how these concepts relate to traditional financial practices, and their significance in the ever-evolving landscape of cryptocurrencies and blockchain technology.
When you apply the principles of effective subaccount management to both traditional and digital trading arenas, you unlock various benefits, including enhanced risk management and better capital allocation. In particular, you’ll find that this practice not only streamlines your trading operations but also empowers you to maximize the potential of your more successful trading strategies.
Core Concepts
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Subaccount
- Traditional Finance: A subaccount is a subordinate account within a primary account used for separation of transactions and funds management.
- Crypto Context: In the world of crypto, a subaccount allows traders to segregate funds and strategies efficiently, especially important when utilizing bots for trading.
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Profit and Loss (P&L) Calculation
- Traditional Finance: This refers to a financial report that summarizes revenues, costs, expenses, and income over a specific period.
- Crypto Context: Using subaccounts enhances P&L calculations for each specific trading strategy, making it easy to assess performance without confusing results across different strategies.
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Compounding Effect
- Traditional Finance: This refers to earning interest on previously earned interest, thereby accelerating the growth of investments over time.
- Crypto Context: In algorithmic trading, successful strategies can reinvest their profits swiftly, leading to a compounding effect that can lead to greater profitability.
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Reallocation of Funds
- Traditional Finance: This involves moving funds from one investment to another to adjust the investment strategy based on performance.
- Crypto Context: With subaccounts, reallocating funds from a less successful trading strategy to a more successful one is seamless and efficient, allowing immediate reaction to market conditions.
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API Key Management
- Traditional Finance: API in traditional trading platforms allows software to interact with the trading system efficiently.
- Crypto Context: Securely managing API keys for different subaccounts prevents the risk of misconfiguration that can lead to trading errors, which can be particularly costly in crypto markets.
Understanding these concepts is crucial for anyone starting in algorithmic trading, especially in a landscape increasingly dominated by cryptocurrencies. Every strategy you deploy, every decision you make, benefits from recognizing these core principles.
Subaccounts in Algorithmic Trading
A) The Importance of Subaccounts
- Improved Risk Management: Separate bots for different strategies mitigate risk exposure.
- Easier Performance Tracking: Focused P&L calculations allow better assessment of strategy performance.
- Capital Optimization: Strategies can be directly funded based on performance without affecting others.
In the realm of traditional finance, segregating investments into subaccounts can similarly reduce risk and enhance portfolio performance. Subaccounts provide a structured way to analyze growth and losses distinctly.
B) Setting Up Subaccounts
- Identify the Trading Platform: Choose exchanges that support subaccounts, like Kucoin or Bybit.
- Create Separate Subaccounts: Designate accounts for each trading strategy, ensuring diverse management.
- Utilize Available Instructions: Most exchanges will have guides for setting up subaccounts to facilitate ease of use.
By juxtaposing this with traditional accounts, it’s clear that having dedicated investment accounts helps maintain focus and clarity; whether in the crypto market or in traditional finance, a specialized approach can lead to success.
C) Fund Management and Reallocation
- Monitor Performance: Keep a close eye on which strategies perform well and which do not.
- Reallocate Funds Efficiently: Move funds easily between subaccounts to support successful strategies.
- Use Automated Features: Leverage tools for automatic fund allocation based on performance metrics.
In traditional finance, reallocating funds from underperforming assets towards growth opportunities mirrors the adaptive strategies available in the crypto space, promoting more dynamic and responsive trading actions.
Crypto Algo Trading
In traditional finance, the necessity for subaccounts may arise from regulations or institutional needs. Conversely, in the crypto realm, subaccounts enable decentralized management of assets, freely supporting a much more fluid trading environment. For instance, automated trading bots draw on separate liquidity pools, which allows for cleaner and more direct trading signals with minimal interference.
Examples of cryptocurrencies like Uniswap and projects like Compound offer various tools to exemplify the benefits of segregated accounts and strategies, influencing capital management directly while aligning with the decentralized ethos of blockchain technology.
Real-World Applications
Historically, traders who maintained well-organized accounts saw superior returns. The crypto market mirrors this with numerous traders leveraging subaccounts for efficient automation and deployment of strategies. For instance, established crypto platforms facilitate cloning of successful strategies by segregating gains into distinct subaccounts. The contrast between traditional and crypto approaches lies in speed and adaptability, with crypto lending itself to intricately programmed trades executed in milliseconds.
Challenges and Solutions
While the benefits are compelling, subaccounts can present challenges, especially with technical integrations and understanding the nuances of account relationships. In the crypto world, liquidity challenges and rapid price fluctuations may complicate fund reallocations. However, properly designed architectures and platforms allow you to programmatically manage these challenges, providing solutions that traditional finance systems often lack.
Common misconceptions about the complexity of using subaccounts can deter newcomers. Clarity and practical guidance are essential to navigate these complexities effectively.
Key Takeaways
- Segregation Matters: Subaccounts reduce risk and clarify performance. This principle applies universally across trading environments.
- Effective P&L Management: Isolate performance metrics for precise evaluation, enhancing strategy refinement.
- Compounding Effect of Success: Reinvesting profits from successful strategies accelerates growth and allows for intelligent capital allocation.
- Seamless Fund Reallocation: Swift movement of funds between strategies ensures timely response to market conditions, important in both trading realms.
- API Management is Key: Proper API usage is crucial for safe and effective trading automation. Mismanagement leads to heightened risks.
Remember, an organized approach in trading can unlock vast opportunities, whether you’re in traditional finance or traversing the exciting landscape of cryptocurrencies.
Discussion Questions and Scenarios
- How can separating trading strategies through subaccounts influence risk management?
- Contrast the fund allocation strategies used in traditional finance with those applied in crypto. What similarities and differences do you see?
- What could happen if you did not utilize subaccounts while trading multiple strategies?
- How might the compounding effect play out differently in a volatile crypto market compared to a stable stock market?
- Imagine a scenario where one of your strategies has underperformed. How would you effectively reallocate funds to turn things around?
Glossary
- Subaccount: An auxiliary account designed to manage separate trading strategies within a primary account structure.
- Profit and Loss (P&L): A financial statement used to summarize revenues and costs to calculate profit over a specified period.
- Compounding Effect: The principle of generating earnings on previous earnings, leading to exponential growth of investments.
- Reallocation of Funds: The act of moving assets from one investment to another to enhance performance or reduce risk exposure.
- API Key Management: Securely providing access points that enable software applications to communicate with trading systems, crucial for automated trading setups.
Through understanding the importance of subaccounts in algorithmic trading, you not only optimize your trading strategies but also prepare yourself for a world where cryptocurrency thrives on innovation and efficiency.
Continue to Next Lesson
I encourage you to continue your journey with the Crypto Is FIRE (CFIRE) training program, exploring the next lesson to enhance your knowledge further in the exciting realm of cryptocurrency and blockchain technology. Happy trading!
Read Video Transcript
Why you need subaccounts when algo trading (SIGNUM)
https://www.youtube.com/watch?v=0YMe4ZcTcuk
Transcript:
when you create your bot on signum we will ask you to create a sub account for the exchange that you’re using and also we support only the exchanges that have a sub account or a way to separate accounts from each other and the reason for that is simply that is best practice to separate bots from each other that has a lot of benefits let me show you here imagine you have three different strategies one strategy let’s say it’s the ga channel strategy on Bitcoin. Then you create a sub account and you automate this trading pair here,
right? And whenever this bot buys and sells, it does not affect any of the other trading bots because the funds are fully separated from each other. And that has several benefits. For example, the first benefit is that you can create the profit and loss calculations for this trading strategy, right? For this trading pair very easily because all the trades that happened for this trading strategy are on one specific account so whenever you download all the trades and you check out the PNL feature that even Bybit has on the sub accounts then you know this is only this one trading
strategy so that is very cool the next benefit is that the strategy that actually makes money will have more and more and more money to reinvest in its trading signals and thus compound on itself whereas the strategy that makes less and less money then this strategy will basically stop trading at some point it lost all the money but it does not affect the other strategy that actually works perfectly well.
So if the strategy that makes money has more money to reinvest next time and next time and so on, then this has a compounding effect for the one that works. And this strategy that loses money will basically have less and less and less money to use, which is actually exactly what should happen, right? And worst case scenario, this loses all of its money.
It does not affect any of the other strategies. So that’s a huge effect and that gives the power to the strategies that work and takes the power and the funds away from the ones that don’t work. Another benefit is that you can easily reallocate funds from one strategy to another by simply sending funds from one sub account to the other sub account.
So let’s say that this strategy starts losing money, right? And you want to give this other strategy more funds or actually all of these remaining funds because this upper one is working fine and you want to just fund it with more money so it can make you even more money right so that’s very easy because you simply move funds from here to here and next time there is a signal from this strategy signum will simply take 100 of what is here and convert it to Bitcoin.
Actually, you can choose to do that. We have this feature, which is very popular, right? So this is another benefit that you have when having sub-accounts and also when using Signum. And why this is so cool as well, because you don’t need to change the strategy settings to send different numbers or something, right? You simply move funds between the accounts and signum simply takes 100 and converts it right so the more money you give it the more money it will use to trade with so that means that in signum for every exchange that we offer you have
an explanation on how to create such a sub account it’s very easy for the exchanges that we support and we will only support exchanges that have that feature okay kucoin has that as well kraken is a bit different it does not have sub accounts like the other exchanges it’s a bit behind in that case but it does allow you to create new accounts with different email addresses now if you’re using gmail you have a benefit that you have infinite aliases for your main email address here is a video that we linked for you to make it easier to set up such accounts this
is why sub-accounts are important and this is also why Signum is opinionated and it will not allow you to put the same API key and API secret twice. When you try that you’ll get an error because this is usually why people have a bad setup for their automations.
We want you to have sub-accounts because it’s the best practice. So go ahead and create that and have your first bot, have your first automatic trade. And I see you in one of the next videos. Good luck.
