Is Algorithmic trading the future?
Team Veye | 04-Nov-2019
With the advent of technology in almost every field, how could trading be far behind? Due to advancements in trading and financial applications, algorithmic trading and high-frequency trading have come at their doorstep. These are now prevalent in exchanges all over the world. After having found their foothold in developed markets these slowly spread to developing economies.
Algorithmic Trading is putting a strategy or rule to trading via an algorithm. The rules or strategy could be based on technical or fundamental indicators. In the Algorithmic Trading system, you formulate a rule and automate it. Buy or sell are triggered when these conditions are met. Target and stop-loss can also be incorporated in some modules.
It is a known fact that emotions play a major role in trading. Many experienced traders fail when emotions intervene in their trading decisions. Algorithmic trading not only takes care of this and similar things, it virtually eliminates all human errors.
These days, trading is happening in the span of microseconds and going on to Nanoseconds, with just one millisecond accounting for millions in revenue per year from market trades. Algorithmic trading only can match the speed and enormity with which these are happening. It has the ability to access and process information faster than others. The faster one can process information, the faster they can capture opportunities and make a profit.
The majority of trading across many countries has been automated and relies on Algorithmic Trading. Most of the hedge funds, trading houses, and brokerage firms rely on algorithmic trading.
The machine learning/ deep learning has also been made use of in algorithmic trading recently. If the market does not favour your trading strategy rules, the system’s self-learn algorithms could adjust trading to different patterns and alter the rules to match market conditions.
Recent legislation in Europe has encouraged automation. Many regulatory improvements and changes favour the use of algorithmic trading and High-Frequency Trading as it brings about transparency and accountability. This will further help in its growth and proliferation.
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