Some Things to Know About 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? 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.
One reason why that algorithmic trading has surely become very popular is due to the benefits that it holds on trading manually. 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 in which such trades are made is measured in only fractions of a second that is a lot faster than what humans are able to perceive.
The algorithm actually has the benefit of scanning and executing on various indicators at a speed which no human has done. Since trades are analyzed and done in a faster way, then you can have more opportunities and they are being offered at better costs.
Also, a benefit to such algo trading is accuracy. 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. Through manual entries, it is a lot more likely to purchase the wrong currency pair or such wrong amount as compared to the computer algorithm which has been double checked to ensure that there is correct order 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. One great reason why such is really a benefit is the fact that a human trading would be prone to a lot of emotions and this would cause 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. In algo-trading, you may run the algorithms according to previous data so that you can see if this really worked before. 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.
One excellent benefit that you can have from automated trading is the reduced transaction cost.