Algo Trading

Algorithmic trading (also called automated trading, black-box trading, or algo-trading) uses a computer program that follows a defined set of instructions (an algorithm) to place a trade. The trade, in theory, can generate profits at a speed and frequency that is impossible for a human trader.

The defined sets of instructions are based on timing, price, quantity, or any mathematical model. Apart from profit opportunities for the trader, algo-trading renders markets more liquid and trading more systematic by ruling out the impact of human emotions on trading activities.

a computer program will automatically monitor the stock price and place the buy and sell orders when the defined conditions are met. The trader no longer needs to monitor live prices and graphs or put in the orders manually. The algorithmic trading system does this automatically by correctly identifying the trading opportunity.

Algo-trading provides the following benefits

1 - Trades are executed at the best possible prices.

2 - Trade order placement is instant and accurate (there is a high chance of execution at the desired levels).

3 - Trades are timed correctly and instantly to avoid significant price changes.

4 - Reduced transaction costs.

5 - Simultaneous automated checks on multiple market conditions.

6 - Reduced risk of manual errors when placing trades.

7 - Algo-trading can be backtested using available historical and real-time data to see if it is a viable trading strategy.

8 - Reduced the possibility of mistakes by human traders based on emotional and psychological factors.