What is algorithmic trading? And how it works,
“Algorithmic trading” is basically a system based trading. In which formulas are fitted in the system. And on the basis of that, machines from your side work for buying and selling shares. Algo trading is a process in which a set of guidelines are followed using computer programming. In this, the process of Buy-Sell fast with profit is set on a technical basis. Algo trading is very popular mainly in big countries. Algorithmic trading is also known as black box trading, automated trading and algo trading.
Algo trading is the most effective way of trading, because algo trading is not affected by the mistakes caused by humans in Algo Trading works with speed and accuracy. In Algo Trading, the trader does not have to constantly look at the computer screen to wait for a trading opportunity. The algorithm automatically detects and signals to the investor whenever a trading opportunity is created. Algorithmic trading avoids the trader’s loss from emotional effects.
Speed of “Algo Trading”
Algo Trading decides to buy-sell with such speed, which is not just about the common man. This happens because sometimes human emotions come in front of us during trading and we fail to make the right and fast decision. Algorithmic trading is new in India but still Algo Trading has acquired 40% of the trades on the National Stock Exchange NSE. Algo trading is also true for big investors and high institutional investors and those investors who are short on time.
How is Algorithmic trading strategies formulated? –
The main focus of algo trading is to devise a strategy to earn money, algo trading works solely on traditional trading strategies. This kind of strategy is fitted in algo trading – Trend Following Strategy, Mean Reversal strategy, Arbitrage, Statistical Arbitrage or Market Making.