The Best When It Come to 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 many of those who say that algo trading would help to improve the liquidity as well as it boosts the informativeness of such prices and quotes.
A big reason why the algorithmic trading has become really popular is the due to the benefits that such holds over trading in a manual method. The benefits of such algo trading are related to accuracy, speed and also reduced costs. Since the algorithms were written in advance and they were executed manually, then the primary advantage 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.
Such algorithm has such benefit of scanning as well as executing on different indicators at a speed and which is far from what human can do. Because the trades may be analyzed as well as executed in a much faster way, then there are a lot more opportunities which are available at better costs.
Accuracy is also a benefit to algo trading. 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. With the manual entries, it is more likely that you would buy the wrong currency pair or that wrong amount unlike the computer algorithm that has been double checked to make sure that a correct order is being entered.
One of the largest benefits of algo trading is such ability to remove human emotion from those markets, trades which are constrained in a set of predefined criteria. A reason why this is one advantage is due to the reason that the human trading is prone to emotions that can result to irrational decisions. The two emotions that would lead to a poor decision that algo traders aren’t made susceptible too are fear and greed.
What is also great about algo trading is such ability to backtest. 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.
A great benefit that you can get from automated trading is such reduced transaction costs.