An algorithmic is a set of rules for solving a problem. Algorithmic trading is a process for execution of orders utilizing programmed or automated trading instructions to process for variables such as volume price, and timing.
Technology help to identify the future and also help us understand the following trend.. Traders are using this set of rules as they use of technology to take advantage of market conditions and earn high returns.
Among them one technology is algorithmic trading or algo trading which is a type of trading that comprises of certain equations to run trades on a program designed by the user. Most of the retail investor are also using algo trading. algorithmic trading has become more popular in big investing house to execute multiple order in single click.
Algorithmic trading is a wide complex formula which is combined with a certain mathematical equations to take a decision to buy or sell stocks. Algorithmic traders often make market conditions and use of high-frequency trading technique which helps a trader to make hundreds of trades. In Algorithmic trading user can define his trading strategies based on market volatility and conditions.
Important advantage of algo trading is to removes emotion from the trading. This is because emotions can cause trader to make irrational decisions.
Automated trading function is very helpful for traders. Automated function helps to take the right trade at right time during market conditions which increases the chances of minimum risk and high returns. It also helps the trader do identify the right opportunities in the market.
Algorithmic trading also been tested before on previous market data. Testing of algo is essentially and it is tested to see if a set of rules which is defined by trader is worked in the past or not. It helps the user to identify any flaws in the system before they go for live. Algo trading reduces the time in execution of orders and to analyze the market. These are the benefits made very popular tool among traders in many stock exchanges.
Although in algorithm trading before computer start the trades, the trader have to input the strategies they want to use. Trader can decide the time, price and volume. Use of algo strategies by traders makes a large impact on their earnings.
The strategies used in algorithmic trading is one of the most commonly used algorithmic trading strategies used is to trade with the market trend. Algo help to follow the current market trend and to execute the trades based on the information. Trader may uses different indicators like RSI, moving average and price level to identify the right stock. Algo generates a report to buy or sell.
Algorithmic trading was first introduced in India in year 2009 and has been adopted by many institutions and trader because of to its low cost. SEBI (Securities and Exchange Board of India) has also given a positive note in the adoption of algorithmic trading in India which further helps to incorporate the trading on a larger manner in stock markets.
Although algorithmic trading is fully automated, the user still has the authority to increase or can decrease the liquidity in the particular stocks making it easy to enter and exit the stocks according to certain conditions based on algorithm.