The Best When It Come to Algorithmic Trading
In the past years, the algorithmic trading has definitely increased. Does this help in improving the market quality and should you 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.
One reason why that algorithmic trading has surely become very popular is due to the benefits that it holds on trading manually. What you must know is that there are many benefits that you can get from algo trading like reduced costs, speed and accuracy. 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.
Algorithm trading has the benefit of scanning as well as executing on the different indicators at a speed that no human is able to do. Since trades are analyzed and done in a faster way, then you can have more opportunities and they are being offered at better costs.
Also, a benefit to such algo trading is accuracy. If the computer is robotically executing a particular trade, then you could avoid the drawbacks of accidentally putting in the wrong trade which is associated with such 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.
A big benefit of such algo trading is that this is can remove human emotion from the markets and the trades are placed in a 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. 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 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. Through the algo trading, you may run the algorithms according to the past data in order to see if it would have worked previously. Such ability gives a big advantage since it lets the user remove any flaws of the trading system before running this live.
What is a great benefit that you may have from the automate trading is that minimized transaction cost.