Cloud-Based vs Local Algo Trading Systems: Which Should Retail Traders Choose?

Key Takeaways

1. A local algo trading platform depends on your own machine and internet staying live; a cloud-based one runs independently of your device.
2. Local setups may have lower upfront costs but carry more uptime risk; cloud setups usually involve a recurring hosting cost and can reduce dependence on your personal device.
3. Cloud-based and local platforms can both be used for algorithmic trading. The choice depends on factors such as how continuously the strategy needs to run, infrastructure requirements and the level of monitoring required.
4. None of the algorithmic trading platforms, either cloud or local, provide any guarantee of profits. The automation process alters only the execution process and not the level of risk associated with it.
5. A strategy can be  tested locally before moving the same algo trading application to a cloud server, depending on the trader's setup and requirements

If you've started reading about algorithmic trading, you've probably run into this question fairly early: should your strategy run on a server somewhere in the cloud, or on the same laptop you use for everything else? 

Where your algo trading platform actually runs affects your uptime, your costs, and how much monitoring your setup may require once a strategy goes live

This blog breaks down cloud-based and local algo trading systems in plain terms, so you can pick the one that fits how you actually trade.

What Are Cloud-Based and Local Algo Trading Systems?

A local algo trading setup runs on your own computer. Your algo trading application, your strategy logic, and your connection to the broker's servers all sit on one machine, usually at home or in your office. If that machine goes to sleep, loses internet, or has a power cut mid-trade, your algo trading platform may stop sending or monitoring orders until the connection is restored.

An algorithmic trading platform that operates in the cloud is a program that is hosted on a remote server that can be leased either from a cloud host or a VPS (Virtual Private Server). 

Your algorithm can continue running on the remote server even if your personal computer is switched off, subject to the availability of the cloud service, broker connection and other required systems.

Both approaches can run the same strategy logic. The difference is entirely about where that logic lives and what has to stay running for your algo trading application to keep working.

Local Algo Trading Systems: What You're Signing Up For

A local setup is usually the first step for retail traders testing out an algo trading platform, and here are some reasons for that.

Potential Advantages:

• Lower upfront cost, since you're using hardware you already own.
• Full control over your environment. You can install, tweak, and debug your algo trading application directly.
• No monthly server rental if you're only running strategies during market hours on a machine that's already on.

Potential Limitations:

• The setup depends on the availability of your computer, power supply and internet connection.
• You may need to monitor the computer and connection, particularly when the strategy is running.
• Scaling up to multiple strategies running at once puts real strain on a home setup, especially if you're also running charts, a browser, and other software on the same machine.

For someone running one or two strategies casually, with limited capital and limited screen time, a local algo trading platform may be suitable. The infrastructure requirements may increase when multiple strategies need to run continuously or require consistent connectivity.

Cloud-Based Algo Trading Systems: What Changes

Move the same algo trading application to a cloud server, and a few things shift immediately.

Potential Advantages:

• Your strategy runs continuously on the cloud server even when your personal computer is switched off, subject to the availability of the required services and connections.
• Cloud servers can reduce the dependence on the power and internet connection of your personal computer 
• You can access and monitor your algo trading platform from your phone or any device with a browser, since the actual execution happens elsewhere.
• Running several strategies at once is simpler, since you're not competing for resources with everything else open on your personal computer.

Potential Limitations:

• There's a recurring cost, whether that's a VPS subscription or a cloud hosting fee, on top of whatever you're paying your broker.
• Setting one up isn't always plug-and-play. You (or someone you hire) need to configure the server, install the required software, and keep the connection to your algo trading application secure.
• If you're not comfortable with basic server management, you're relying on a third party or a developer to maintain it for you.

For traders running strategies during volatile sessions, or anyone who can't be at their desk watching a screen all day, a cloud-based algo trading platform can reduce dependence on the trader's personal computer and local internet connection

Cost Comparison at a Glance

This is a general comparison, not a fixed rulebook. Your own choice will depend on how often your strategy trades, how much capital is behind it, and how much manual oversight you're willing to put in.

Common Doubts Retail Traders Have

Do I need coding skills to use either setup?

This is not always the case. Some Algo Trading Platforms offer rule-based or no-code tools which enable you to make a strategy with the help of predefined conditions.

Is a cloud algo trading application safer from a compliance standpoint?

Uptime and infrastructure are separate from  regulatory compliance. Whichever setup you choose, your algo trading platform still needs to work through a SEBI-registered broker and comply with exchange rules around API access and order routing.

Can I switch from local to cloud later?

Yes. A strategy can be developed and tested locally and later deployed on a cloud server if the required infrastructure supports it.

Does a cloud setup guarantee better returns?

None of the algo trading systems, cloud-based or locally installed, guarantee returns. Automation changes the way trades are executed, but it does not reduce risks.

What's the biggest mistake traders make when picking between the two?

Moving a strategy to a cloud server before testing its logic and required infrastructure may create operational issues. It's usually worth validating your algo trading application on a local setup first, then scaling to the cloud once the logic is stable.

How mastertrust Helps You Run Either Setup

Whether you're testing a strategy locally or running it on a cloud server, mastertrust gives retail traders a path into algo trading through broker-approved APIs. You can connect your own algo trading platform or a third-party algo trading application to your mastertrust account through the applicable API and authentication processes required under the broker and exchange framework.

If you're building or hosting your own execution logic, mastertrust's REST API provides API-based access to supported trading functions. The same API can be accessed from a local machine or a remote server, subject to the applicable technical and regulatory requirements.That flexibility means you're not locked into one infrastructure choice from day one.

On the account side, mastertrust charges Rs. 20/- per order for Stocks, F&O and Commodity. mastertrust provides zero account opening, with the first year of free demat AMC, with the option to get lifetime free demat AMC by paying a nominal one-time fee. 

That keeps the cost of experimenting with an algo trading platform predictable, regardless of whether you eventually move to a cloud setup or stay local.

Final Thoughts

There isn't a universal answer to cloud versus local for algo trading. A local setup may be reasonable to start if you're testing one strategy with limited capital. Once your strategy needs to run continuously, handle more capital, or execute faster than you can babysit manually, a cloud-based algo trading platform may be considered. 

The right choice comes down to how your strategy trades and how much oversight you realistically want to give it.

Frequently Asked Questions (FAQs)

1. Is a cloud-based algo trading platform more expensive than a local one?

A cloud-based setup usually involves recurring server or hosting costs, while a local setup may not involve a separate hosting cost if existing hardware is used. However, local setups may also involve hardware, power and internet costs.

2. Can retail traders legally use an algo trading application in India?

Yes. Algorithmic trading can be done by retail investors when it is carried out via SEBI-registered brokers and approved APIs of these brokers, whether it is done locally or on the cloud.

3. Do I need a VPS specifically, or can I use any cloud server?

A VPS is one option for hosting an algo trading setup. Other cloud-server configurations may also be used, depending on the software, broker requirements and infrastructure needed.

4. What happens to my open positions if my local system crashes?

Your positions with the broker remain as they were placed, but your strategy stops monitoring and reacting to the market until your system is back online. This is the main risk a cloud-based setup reduces.

5. Is it possible to run a hybrid setup?

Certain traders would prefer to design their strategies locally and test them as well, before sending the fully developed strategy to a cloud server to execute it. This is quite common.

6. Do I need advanced technical knowledge to move from local to cloud?

Basic server setup knowledge can be useful when moving an algo trading application to a cloud environment. Depending on the setup, a developer or technical support team may be required to configure the connection.