The Best When It Come to Algorithmic Trading
In the past years, the algorithmic trading has definitely increased. 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.
The big reason why such algorithmic trading has really become quite popular is because of the advantages which holds over trading through the manual method. The benefits of such algo trading are related to accuracy, speed and also reduced costs. Because the algorithms were actually written beforehand and they are executed in a manual way, then the main benefit is speed. The speed wherein those trades are made is actually measured in just fractions of a second and this is much faster than what those humans actually perceive.
The algorithm actually has the benefit of scanning and executing on various indicators at a speed which no human has done. 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.
What you can also get from algo trading is accuracy. When a computer can execute a trade automatically, then you will be able to prevent the pitfalls of putting the wrong trade accidentally which is common in human trades. In manual entries, there would be a higher chance of buying such wrong currency pair or that wrong amount unlike the computer algorithm that was double checked to be sure that there is really a correct order that is 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.
Being able to backtest is also a benefit from algo trading. It can be difficult for the traders to understand the parts of the trading system which actually work and what doesn’t because they are running the 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. Such ability gives a big advantage since it lets the user remove any flaws of the trading system before running this live.
A great benefit that you can get from automated trading is such reduced transaction costs.