How to Create an Automated Algorithmic Trading Portfolio (Stocks)

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Algorithmic trading is really hard, requires lots of money, you need to know how to code and have a PhD in applied financial mathematics… right?

Wrong!

At Aikido, we empower anyone to build and manage their own algorithmic/quantitative investment portfolio. No coding or in-depth financial knowledge required. Simply connect your broker (eg. Interactive Brokers), pick a strategy, build a portfolio, and the trades are sent straight to your broker!

If you’re interested in automating your investing and want an quick way to build a portfolio, then look no further.

I’m Shane; algo trader, FIRE enthusiast, and the founder of two quant startups.

So, without any further delay, let’s get you algo trading today!

Premium Aikido users can connect their Interactive Brokers account with Aikido to create a quantitative investment portfolio in less than 5 minutes! So, let’s walk through the portfolio creation process for automated algorithmic trading portfolio in Aikido Finance.

Step 0: Connect your Interactive Brokers Account with Aikido

First steps first – you have to connect your broker account with Aikido so we can send the trades!

Navigate to the Broker Login page. You can find this page from your profile dropdown menu in the top right; it says ‘Connect Broker’.

An in-depth article on how to integrate your broker with Aikido can be found here (includes troubleshooting).

Note: You must have an IBKR Pro account (rather than IBKR Lite).

For most people, this process should take less than 5 minutes.

You can switch between ‘Live Trading’ and ‘Paper Trading’.
‘Live Trading’ uses your real Interactive Brokers account – ie. real cash.
‘Paper Trading’ uses a simulated/mock Interactive Brokers account – they normally give you $100,000 to play around with.

Enter your Interactive Brokers username and password into the two fields available. Ensure you are using the correct credentials here!!

Note: You will need to disable 2-factor authentication in Interactive Brokers to do the integration.

If your integration is successful, you will be brought to the broker dashboard.
The broker dashboard shows your connection status, market status, available cash, and other metadata.
If you have multiple accounts, you can switch between them by choosing the appropriate Account ID from the dropdown (most people just have one account)

Step 1: Find the trading strategy you want to use

Look through Aikido’s catalog of algorithmic trading strategies to find one that stands out to you.

You might choose a trading strategy based on your risk tolerance, appetite for returns, recent performance, or an array of other things. For argument’s sake, let’s say you chose Microcap Momentum.

Step 2: Create Portfolio

Click the “CREATE PORTFOLIO” button on the strategy to enter the portfolio creation flow.

In the first step of the flow you will see two buttons: ‘Manual’ and ‘Automated’. Click Automate.

Note #1: Automated portfolio creation is for Premium Aikido users only. It allows you to connect your Interactive Brokers and have the whole process done for you (pretty cool, would suggest 👌).

Note #2: You can only create an Automated portfolio if the market is open (ie. NYSE/NASDAQ open 9.30AM to 4.00PM EST Mon-Fri). If you are trying to build a portfolio outside these hours, check back again later once markets open.

Step 3: Name the Portfolio

Name your new portfolio whatever you like, or just use one of our auto-generated zen names 🧘‍♂️.

Step 4: Choose your Amount to Invest

Decide the amount you want to invest in USD ($)

The amount you decide to invest is equally weighted over each holding in the portfolio.

Because the universe of stocks Aikido offers is US-only (Extended geography coming later in 2022), the investment value in USD($) is shown below the input.

You can invest up to the amount you have available in your Interactive Brokers account.

Step 5: Confirm the Portfolio and Send the Orders to your Broker

Once you click “Confirm Purchases”, the market orders are sent to your broker. They should execute pretty swiftly, normally within a few seconds. You will know when each trade has executed when it gets the status FILLED.

For further information on Interactive Brokers FX and transaction costs check out this video. Interactive Brokers is one of the lowest cost brokers out there, no doubt.

After all the orders have executed, click the “Go to Portfolio” and you will be brought to your brand new algorithmic trading portfolio, Woo! 🥳

View your Portfolio

From Portfolio ‘Overview’ you can view performance, check out key metrics and view your holdings.

From the ‘Transactions’ tab you can view transaction level data (every buy or sell you have ever made). If a stock in your portfolio goes through a stock split, delisting, name change, or any other event, it will be handled automatically.

From the ‘Orders’ tab you can seeing any outstanding, unfilled orders that are yet to be executed.

Rebalancing (Keeping your Portfolio up to Date)

Depending on which algorithmic trading strategy you chose, you will need to keep the portfolio up to date every month, quarter or year. You will be notified via email when your rebalance is due (ensure you are subscribed to our mailing list to receive this!).

When a rebalance is due, you will return to Aikido, navigate to the relevant portfolio and click the ‘Rebalance’ button. You will be taken through a wizard to buy and sell stocks and shares in your portfolio. It should take all of about 60 seconds.

And there you have it – you’re now officially a quant (pretty cool dinner-table conversation, I would say!).

You can read a full guide on how to rebalance an automated algorithmic trading portfolio here.

Auto-transactions & Gotchas

There are a few events which will trigger Aikido to automatically add a transaction to your Aikido portfolio. Those events are:

Delisting

A delisting occurs when a stock is removed from an exchange, this can happen for a variety of reasons including mergers, liquidation, or even lawsuits. When this event occurs, your broker will automatically sell off the position for you – Aikido mirrors this event and adds a sell transaction to your portfolio to keep it inline with your broker. This means you could have some extra cash lying about in your broker – the next rebalance will fix this and bring your portfolio back up to the number of stocks it is supposed to have.

Note: In a situation where you own shares of company B, and B is a child company of A. If B merges with parent A, in some circumstances you will be issued stock of company A automatically by your broker. This event, while uncommon, is not mirrored by Aikido. If this event occurs you should sell the parent company A in your broker manually. Rebalance will then bring your portfolio up to date again.

Stock split

A stock split is when a company increases the number of its outstanding shares to boost the stock’s liquidity. It brings the price of a individual stock down. When this event occurs, all shares of the stock are automatically sold and then the equivalent dollar amount is repurchased. These two transactions are added to your Aikido portfolio automatically.

Other corporate actions

Other corporate actions may not be tracked by Aikido. Rebalancing will sort most issues out, but if they persist – get in touch and we would be happy to help!

2% portfolio creation buffer

When creating and rebalancing your portfolio, Aikido leave 2% of the total portfolio value to the side to account for forseen and unforseen events. For example, if you are creating a portfolio with a total value of $1000, Aikido will not invest $20. That buffer will cover the cost of:

  • Slippage
  • Market volatility
  • Currency conversion rates
  • Transaction costs
  • Other fees

Most of the 2% will not be spent and you will find the cash waiting patiently for you in your broker.

Thanks for reading; happy trading!

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