What You Should Know Regarding Algorithmic Trading
Such algorithmic trading has surely increased in the previous years. Such would help to improve the market quality and is it best to encourage this? Well, there are so many of those who say that algo trading does help in improving the liquidity and would also boost the informativeness of the prices and quotes.
A big reason why the algorithmic trading has become really popular is the due to the benefits that such holds over trading in a manual method. The benefits of such algo trading are related to accuracy, speed and also reduced costs. Due to the reason that such algorithms were written in advance and done manually, 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.
The algorithm actually has the benefit of scanning and executing on various indicators at a speed which no human has done. Due to the reason that the trades are being analyzed and they are done in a much faster way, then you will surely have more opportunities and they are made available at a lot better costs.
Also, a benefit to such algo trading is accuracy. If the computer is robotically executing a particular trade, then you could avoid the drawbacks of accidentally putting in the wrong trade which is associated with such human trades. In manual entries, there would be a higher chance of buying such wrong currency pair or that wrong amount unlike the computer algorithm that was double checked to be sure that there is really a correct order that is entered.
A big benefit of such algo trading is that this is can remove human emotion from the markets and the trades are placed 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.
What is also great about algo trading is such ability to backtest. 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. With algo-trading, you can surely run the algorithms based on past data to be able to see if such worked in the past. Such ability gives a big advantage since it lets the user remove any flaws of the trading system before running this live.
What is a great benefit that you may have from the automate trading is that minimized transaction cost.