Algorithmic Trading

Algorithmic Trading

There is no second thought we humans have taking technology to an entirely new level. Achieving tech success in different aspects of sectors is something that makes us proud to be. The same is with trading where the algorithm has taken over. Algorithm trading in the stock market is a big leap in recent times. The stock market requires insights, timing, and level of genius from humans. 84% of trades that happen in NYSE and 40% in NSW is done using algorithmic trading. This is why Algo trading is growing and will cover most of the trading sector.

What is Algorithmic Trading?

Algo Trading is the process of using computer programmed to follow a set of instructions for placing the right trade in the stock. One of the reasons why Algo trading is getting more and more acknowledged is because of no-error in trading. There are defined sets of rules based on timing, price, quantity, and mathematical model.

There are many benefits of using algorithmic-trading-

Trades are executed at best possible price

Timely and correctly trading is done

Simultaneous automated checks on multiple market conditions

Reduction in possible mistakes of wrong share trading

Reason to explore Algorithm Trading-

There are many reasons to explore algorithmic trading. These reasons can be better explained in terms of benefits. Some of the benefits of mentioned before-

No Human Emotions-

Machines do not carry emotions like humans, and so there no room for error. Humans tend to make mistakes due to fear and greed. The tool never makes decisions based on external factors. They follow what is written in the program. Therefore, as you set the trading timing and other essentials on the system, it takes the process further.

Different forms to Apply-

Algorithm trading can be applied in many forms, which includes-

Mid to long term investors-

These are also called as buy-side firms who purchase stocks in large quantities but do not want to influence stock prices.

Short Term Traders and Sell-Side Participants-

These participants can benefit from algorithm trading. Besides, it aids in creating sufficient liquidity for sellers.

Accuracy and Speed-

No doubt, machines are very accurate and perform a speedy task. Once the program is set, it will trade in the stock accordingly. Humans tend to make mistakes while trading. The inefficiency concerning speed and accuracy can cost a considerable error in trading, bringing loss to you. If you want to place and close 100s of orders within the period, it will do it.

Scalability-

Given the vast amount of computing power available in the present day, we are eligible enough to run multiple strategies using the system. For humans, this is not possible to do it at a single go and focus on other tasks. The scalability feature of algorithm trading is far better and ahead than humans.

Adding Machine Learning Touch-

Machine Learning has its footprint in every industry. Algo trading, too, has witnessed the touch of machine learning. It helps in extracting patterns from data processed globally on a real-time basis. When Algo trading and machine learning are combined, stock trading becomes handy. Furthermore, it can create wonders in the form of-

Using nanotechnology in trading

Custom chips allowing HFT execution in 74 nanoseconds

Companies use cryptocurrency for service will see an increase in the number

Allows Backtesting-

One of the advantages of using Algo trading is its ability to backtest. For a trader, it is quite challenging to know which trading system will work. By using the backtesting method, Algo trading allows you to see the past data and analyze if it could have worked in the past. This method can help the user to remove errors in the trading system while running it live.

No Transaction Cost-

Another significant advantage of automated trading is the reduction in transaction costs. In Algo trading, the trader will not have to spend the time over monitoring markets; the system does it by self. Under continuous supervision, there will be a reduction in time and lower transaction costs.

Conclusion-

The future trading entirely depends on the new technologies, including the Algo trading method. With individuals and trading companies understanding the worth of Algo trading, it is worth to wait what future holds.