What is algo trading and what are its advantages

 If you are into investing and stock market, you must have came across the term algo trading strategies or intraday trading strategies. Let us try to understand what these terms precisely means

What does algo trading mean?

Trading on the stock market isn’t a hit and trial process. It is something that can be programmed for – something that can be mechanized. When it comes to algo trading India is still a new country for it. It was introduced here just a decade ago in 2009, but it has seen quick adoption on the stock market and more and more people, especially those who are just entering the trade market, are getting into algo trading. With the help of pre-written, back-tested algorithms that are run with the help of computers, you can generate profits that are otherwise unable to be generated manually. Free from emotional biases and logical flaws like humans, algo trading or automated trading is the future of intraday trading.

Advantages

1)     Since automated trading does rely on humans, it is free from human errors like emotional biases (greed and fear) and other mistakes like inaccuracy of calculations, logical errors etc.

2)     When it comes to algo trading, a number of autonomous market checks are performed to execute trades in a way that generates the most profit.

3)     With the help of automated trading, you can perform high frequency trades (HFT).  With the help of HFT, you can perform quite a large number of trades in a relatively small amount of time. This means that even if you generate small profits on individual trades, the sheer volume of trades generates a huge amount of profit for you.

What are the technical requirements for doing algo trading?

1)     First and foremost, you either need to be proficient in programming or you’ll have to employ a programmer to program the intraday trading strategies that will help you make trades. Note that the strategies you write or get written would have to pass back-testing before they can be used in the market.

2)     You would also be required to have access to trading platforms as well as the internet, in so that you can place orders.

3)     You will also need real-time access to market data feeds which would be monitored by the trade algorithm.

With the help of automated trading, the experienced traders can make trade execution more efficient and they can also spot fleeting trading opportunities. If you are into stock market and investing, algo trading is something you ought to try. It has the potential to transform your life and reap you serious profits from the market. 

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