Traders are always trying to get a competitive advantage. This means that they are constantly consuming information to find and make use of the best available strategies and trends. One such trend is that of algorithmic trading, which is also known as automated trading or algo-trading.
An algorithm is series of unambiguous and well-defined instructions that performs some task and comes to a stop. This is the basis for algo-trading as it leverages the processing power of computers to make trades based on an algorithm. The intention of this is to complete trades at speeds that humans cannot. By doing this, algo-traders hope to generate profits at a quicker rate than normal.
The parameters that are setup in these algorithms revolve around quantity, time, price, or some other mathematical construct. To fully take advantage of machine capabilities, High Frequency Trading (HFT) is one of the most common applications of algo-trading today. Using a provided algorithm, the computer system rapidly performs trades that meet established requirements across several markets.
If algorithms are being developed, there must be something that governs them. In many cases this is an existing strategy. The intention of using these strategies is to achieve a certain result such as increased earnings. Some of these strategies are:
Of course, the implementation of a strategy that is executed by a computer system has some prerequisites. These are as follows:
The benefits of leveraging the power of a computer system for trading on your behalf cannot be overstated. This is especially true considering you set the trading parameters yourself. The advantages of algo-trading are as follows:
Algo-trading has many advantages over human beings in the areas of speed and precision. However, it is recommended that you review and ensure that you meet the prerequisites so you can enjoy a successful implementation.