Algorithmic Trading – the Latest Way of Money-making

Algorithmic TradingIf you wish to make a lot of money, there are several ways you can do that. But do you get upset at times with a thought that they are not your cup of tea? I can just tell you hear that instead of getting frustrated, keep finding more alternatives. You may think that only others get ways to make money and you don’t. But it is not so. It is your thinking that you need to change. E.g. I will tell you a new way of money-making – Algorithmic Trading! Surprised, what it is? Or some of you may know it already. But those who don’t know and are nervous that they don’t find money-making machines, should learn about it.

What is Algorithmic Trading?

Algorithmic trading involves the use of computers which are programmed to act upon a certain set of instructions about placing a trade so as to make profits at a frequency and speed which is impossible to achieve for a human trader. These instructions are based on price, quantity, timing or any mathematical model. Besides the profit-making potential for the trader, algorithmic trading turns markets more liquid and trading more organized by eliminating human emotional interferences in trading processes.

Benefits of Algorithmic Trading

  • Trades carried out at the best prices
  • Instant and precise placement of trade order (so, high opportunities of execution at preferred levels)
  • Trades are timed appropriately and instantly to avoid considerable price fluctuations
  • Cost of transaction is reduced
  • Instantaneous automated checks on several market conditions
  • Less risk of manual mistakes in placing trades
  • Less chances of human traders’ errors which occur due to psychological and emotional factors

High Frequency Trading

High frequency trading is the greatest component of today’s algo-trading, which tries to capitalize on placing numerous orders at extremely fast speed through several markets and decision parameters, according to pre-programmed instructions.

Trading Forms which Use Algorithmic Trading

There are many trading forms wherein algo-trading is used, like:

  • Buy side firms (mutual funds, pension funds, insurance firms) or mid- to long-term investors who buy stocks in big quantities but don’t wish to influence stocks costs with large-volume discrete investments
  • Sell side participants and short-term traders (speculators, arbitrageurs, market makers) get profit from automated rate execution; plus, algo-trading helps in forming enough liquidity for sellers in the market
  • Systematic traders (pairs traders, trend followers, hedge funds, etc) find this very efficient, i.e. to program their rules of trading and allow the program to trade automatically

So, do you now believe that more and more money-making ways keep coming in the market and you just should keep on finding them. Here I have shown you one – are you going to take this opportunity?

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