Smart Ideas: Finance Revisited

The Best When It Come to Algorithmic Trading

In the past years, the algorithmic trading has definitely increased. Does this help in improving the market quality and should you encourage this? There are a lot of those who are saying that algo trading helps in improving such liquidity and also boosts the informativeness of the quotes and prices.

The big reason why such algorithmic trading has really become quite popular is because of the advantages which holds over trading through the manual method. The advantages of algo trading are actually related to speed, accuracy and also minimized costs. Because the algorithms were actually written beforehand and they are executed in a manual way, then the main benefit is speed. The speed wherein those trades are made is actually measured in just fractions of a second and this is much faster than what those humans actually perceive.

Algorithm trading has the benefit of scanning as well as executing on the different indicators at a speed that no human is able to do. Because the trades may be analyzed as well as executed in a much faster way, then there are a lot more opportunities which are available at better costs.

Accuracy is also a benefit to algo trading. When the computer is automatically doing a certain trade, then you would be able to avoid such pitfalls of accidentally placing in the wrong trade associated with those human trades. With the manual entries, it is more likely that you would buy the wrong currency pair or that wrong amount unlike the computer algorithm that has been double checked to make sure that a correct order is being entered.

One of the largest benefits of algo trading is such ability to remove human emotion from those markets, trades which are constrained in a set of predefined criteria. A reason why this is one advantage is due to the reason that the human trading is prone to emotions that can result to irrational decisions. The two emotions that would lead to a poor decision that algo traders aren’t made susceptible too are fear and greed.

Being able to backtest is also a benefit from algo trading. It can be hard for such traders to know the parts of the trading system that work and what doesn’t work since they can’t run their system on past data. Through the algo trading, you may run the algorithms according to the past data in order to see if it would have worked previously. This kind of ability would give you a huge advantage because this allows the user to eliminate any flaws of the trading system prior to running such live.

What is a great benefit that you may have from the automate trading is that minimized transaction cost.

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