The Benefits of Using Real-Time Trading Software for Backtesting Investment Strategies

Many investment managers use one type of software to backtest their investment strategies and another type of software to trade in real-time. While this may not seem like a big deal to some, the reality is that using different software for these two processes can lead to huge discrepancies in your backtesting results

But why does this happen and how does using real-time trading software for backtesting fix these issues?


The Problem with Using Different Software for Real-Time Trading and Backtesting 

Backtesting is the process of checking how your investment strategy would have worked in a historical market scenario, allowing you to tweak it when similar situations arise in the future. 

As such, this is an incredibly important procedure that all investment managers should undertake, but software dedicated solely to backtesting comes with plenty of pitfalls

This is mostly down to the fact that financial backtesting software works in an environment that is completely different to real-life trading. Examples of this include the fact that this software:

  • doesn’t usually take execution or calculation latency into account, 
  • comes with fewer daily data points, and 
  • normally has fewer features than its live-trading counterparts.

We have a whole article dedicated to the discrepancy between back testing vs real-time trading, but what you need to know in the here and now is that all this leads to problems. 

Namely, the fact that since you’re backtesting in a scenario that is different from the one you actually trade in throws, at least in part, the results of the backtest out of the window.


How Does Wakett’s Real-Time Trading Software for Backtesting Solve These Issues?

When it comes to backtesting, we always suggest that investment managers should use our real-time trading software to run their tests. By doing so, they can improve their:

  • Data time-frames, which can add up to 17,280 time frames per 24 hours as opposed to just four;
  • Synchronisation of intra-day processes;
  • Book prices, by managing multiple price time series;
  • Time-zone management, which is essential to ensuring accurate data; and
  • Latency management, so that you get a better understanding of how the software itself will affect your investment strategy.

All this makes the results of your backtesting process more accurate, giving you a clearer picture of what you could and should do when certain market situations arise.

So, what are you waiting for? Get in touch with us to discover how, by using real-time trading software for backtesting, you could improve your investment strategy. Plus, our model means that our fully-customisable software still costs less than having in-house developers or getting software coded from scratch!