The Best When It Come to Algorithmic Trading
The algorithmic trading has greatly increased in the past years. This helps in improving such market quality and should this be encouraged? Well, there are so many of those who say that algo trading does help in improving the liquidity and would also boost the informativeness of the 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 advantages of algo trading are actually related to speed, accuracy and also minimized costs. Because the algorithms were actually written beforehand and they are executed in a manual way, then the main benefit 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. Due to the reason that the trades are being analyzed and they are done in a much faster way, then you will surely have more opportunities and they are made available at a lot 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. Through manual entries, it is a lot more likely to purchase the wrong currency pair or such wrong amount as compared to the computer algorithm which has been double checked to ensure that there is correct order entered.
What is a big benefit to this kind of trading system is that this has the ability to get rid of human emotion from such markets and the trades are actually constrained in that set of predefined criteria. The reason why such is an advantage is because those humans trading are susceptible to such emotions which may lead to irrational decisions. Also, the two emotions which may cause poor decision but the algo traders are not exposed to are greed and fear.
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. With algo-trading, you can surely run the algorithms based on past data to be able to see if such worked in the past. 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.
What is a great benefit that you may have from the automate trading is that minimized transaction cost.