Introduction to algorithmic trading

If you are new to the concept of algo trading, here is a short introduction to it before learning about the algo trading benefits.

Human beings rely entirely on artificial intelligence and computers for everyday tasks, and something similar has been happening in stock markets for over a decade. Algo trading allows traders and investors to trade in the stock market with the help of artificial intelligence and algorithms at a high-speed rate which is impossible for human beings to achieve.

So, in simple terms, Algo trading is the process of executing stock market orders using a pre-programmed set of trading rules subject to variables like price, volume, quantity, and time. The sole purpose of Algo trading is to help investors and traders execute trades at accurate times with accurate prices at high speeds to gain maximum profits. Globally, Algo trading is gaining popularity and traction at a high-speed rate, and if you’re unaware of this, you might leave a handsome amount of money on the table.

Algo Trading Benefits

There are several algo trading benefits, and some of the most important are mentioned below:

  1. Speed: The biggest and one of the essential benefits of Algo trading is the amount of speed it provides. The algorithm can access a wide range of data and execute orders within a fraction of a second, which is impossible for a human without making any errors.
  2. Broad Trade: Algorithms and artificial intelligence are capable of handling multiple tasks at the same time. As a result, the extensive process of making numerous trades and investments becomes effortless and resource-saving.
  3. Accuracy: Another advantage of the algo trading system is that it becomes highly accurate due to less human intervention and multiple double checks. It means the chances of executing bad trades get highly reduced, which avoids the risk of financial loss.
  4. Consistency: Consistency is where humans lack the most, and it is well-known that sticking and being consistent with one trade plan or strategy for any trader is impossible. While that’s not the same with algorithms, Algorithms are emotionless and work according only to their programmed codes despite market ups and downs, and this is where most of the developed markets are taking advantage of algo trading.
  5. Transaction Costs: A large number of trades get executed in a short period in algo trading. Multiple trades get executed simultaneously, reducing overall transaction costs by a large proportion, and with the help of dynamic algorithmic strategies, traders don’t have to stick to their screens and monitor prices constantly which is one of the greatest algo trading benefits.
  6. Backtesting: You can check and verify whether your strategy will work or not by constantly backtesting your algorithm strategies with the help of historical data. You can then enhance your strategy to make them robust based on the results.
  7. More Volume: Another algo trading benefit is that it allows enormous numbers of shares to be purchased and sold in a fraction of a second systematically.
  8. Strategy Development: Algo trading requires significantly less human monitoring, so you can invest more of your time in developing more robust strategies to generate huge profits.
  9. Future Proof: India has already acquired 50%-60% of algo trading, but the developed markets have already been using this advanced technology of algorithms for a very long time. Algo trading is the future of trading, global and Indian algo trading markets will continue to grow and develop in the upcoming years.

The Bottom Line

The popularity of algo trading is rising among traders and investors with each passing day. It ultimately depends on which strategy you want to implement, how you can utilize it, and how much you want to customize it depending on your goals. If you are thinking about investing in algo trading, then it is the right time before it gets too late and competition gets too high.

However, before diving into algorithmic trading, you should remember that you need to have some trading and software expertise and experience to get started, or otherwise these advantages will turn into disadvantages for you.


How To Start Algo Trading?

To start algo trading, you must create a strategy and then code that strategy into a program. It would be best if you backtested the strategy to see how well it performs. After finalizing everything, you can now deploy it for live algo trading.

Is Algo Trading Profitable?

Yes, Algo trading is profitable and poses less risk than conventional trading. All you need to do is plan your strategies well with proper back-testing, validation, and optimization of risk management strategies based on your trade strategy.