Free Algo Trading for Tech Savvy Traders

October 23. 2018. 5 mins read

When you decide to do an MBA, one thing you’re able to do at that point in life is change the direction of your career dramatically without anyone labeling your decision as brash. Most MBAs will shoot for the Holy Grail of career changes, investment banking or consulting. For all the alphas in the bunch, a career as a “BSD prop trader” conjures up images of fast cars and seven-figure bonuses, cocaine-fueled nights with models, followed by 16-hour days trading stocks and “killing it”. The reality today is that prop traders have all but vanished, and in their place, you will find large IT departments dedicated to developing algorithms that do the trading instead of humans. Also called “algo trading“, it’s a rules-based trading approach that takes all the emotion out of trading.

Early last year, we asked the question Can Artificial Intelligence be Used for Stock Trading? So far it’s been something that’s been confined to a small set of hedge funds that have been doing this stuff for decades, largely by hiring experts from places like IBM. Only recently has the technology matured enough so that others can begin to dabble in algo trading – using AI or not – though it’s largely been cost-prohibitive. Brokerage firms that offer algo trading platforms usually require large minimums for anyone who wants to play, and they don’t have much tolerance for weekend warriors who want to tool around on their days off. One firm promises to change all that, with an algo trading platform that’s free to participate in – Alpaca.

Alpaca 1.0 – Technical Analysis Using AI

Click for company websiteFounded in 2015, Silicon Valley startup Alpaca AI first came across our radar in an article we published on 6 Startups Using AI for Algorithmic Trading Strategies. At that time, Alpaca was looking at building an algorithmic trading platform that could perform real-time technical trading. Technical trading is all about identifying visual patterns that behave in a predictable fashion. Sticking with the theme of animal names, Long or Short Capital does a great job explaining how this works using an extremely advanced technical trading pattern:

Long or Short Capital Talks Technical Trading
Long or Short Capital Talks Technical Trading – Credit: Long or Short Capital

That bit of cheeky commentary is more or less how technical trading works. The charts form patterns, you identify the patterns, and the stock sometimes behaves in a predictable manner based on the patterns.

Alpaca 2.0 – Free Algo Trading

Fast forward to today and Alpaca AI has now changed their focus to something that should be of much more interest to those of you who want to dabble in using artificial intelligence for stock trading. They’ve created the first algo trading platform that’s actually free to use.

Alpaca AI's features

The technology Alpaca has developed is already in use at institutions in Asia, including Mitsubishi UFJ Financial Group (MUFG), the largest financial institution in Japan. Alpaca has also taken in another $3 million in funding bringing their total funding to $5.8 million to date.

Update 08/30/2021: Alpaca has raised $50 million in Series B funding to scale its platform. This brings the company’s total funding to $71.8 million to date. 

Now you may be wondering just how a company that offers a product for free can make money. Other startups out there like Robin Hood have achieved billion-dollar valuations just by offering something for free. How does that work? Alpaca responded to this question as follows:

We make money the same way that other commission free sites have, and will offer premium accounts. Additionally, such as other online retail brokerage firms, we make money through interest on cash deposits, and payment for order flow, which is like rebates that you receive by routing orders to execution venues, which by the way needs to be disclosed under the regulation known to be 606 Report.

That all makes sense. Of course, firms like this need some economies of scale in order to start generating meaningful revenues, after which point in time they can look to further monetize with a “freemium” business model which offers a premium account for those who want more functionality.

Big Data for Your Big Algorithms

If you’ve ever dabbled in this sort of thing, you’ll immediately begin to wonder just what sort of data points might be available on the platform. Not everyone can afford rich data sets like those provided by FactSet or MSCI which provide the delicious big data your algorithms need to munch on. Basic fundamental data such as market cap and sector information are provided with the Alpaca service along with full market data. (Market data refers to historical price data, trading volume, and the like.)

One other thing to note is that Alpaca supports the ability to import algorithms from other popular algo trading development platforms like Quantopian. If you recall, we published an article on 4 Crowdsourced Hedge Funds for Algorithmic Trading. One of those was a firm called Quantopian which crowdsources the best algorithmic trading strategies from the thousands of users on the platform who are constantly backtesting new strategies. (Backtesting is where you run your algorithm over a period of time in the past to see how it would have performed historically.) Once you realize your algorithm has legs, why share it with everyone else when you can capture all that delicious alpha for yourself? (Alpha is another way to say profits. Using this term is also one way to demonstrate your superiority over those people who didn’t waste two years of their evenings studying for the CFA.)

As you would expect, Alpaca is a registered securities broker and member of the SPIC. This means that you’re insured up to $500,000 – a number which you’ll be hitting in no time with those genius algorithms you’re going to develop. The company’s chief operating officer comes from Wealthfront, a large robo-advisor, where he previously worked as chief compliance officer. It’s always a good idea to have some compliance people around. As annoying as compliance can be, they serve a function by making sure the brokerage firm doesn’t blow up because of some BSD who made a rash decision.


We’ve dabbled in these types of platforms before and what we found was that you could usually play with fake money and develop strategies, but when it came to using real money, the minimum deposits were too high and the commissions as well. (We also realized how bad we suck at algo trading.) You can scratch several of those concerns off with Alpaca. Now you can have a go at deploying your own algo trading strategies without incurring any transaction costs. When it comes to using artificial intelligence, just download one of the many free artificial intelligence frameworks out there, develop your strategy over a few weeks of all-nighters, then plug your artificial intelligence algorithms into Alpaca and let them start crunching away on all that data. The toughest part of the whole thing will be trying to figure out how to spend all that cash you’re going to be printing, you BSD. Click here to give Alpaca a try 


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