Top 6 Advantages of Algorithmic Trading
Have you heard of the term ‘algorithmic trading’? If you have, but haven’t yet fully understood its meaning, you can understand that it is to execute an order too big to fill all together, with the help of pre-programmed automated trading instructions so as to gain profits at a frequency and speed which cannot be achieved by a human trader. This eliminates the need of watching a stock constantly and sending out those slices manually repeatedly. No wonder, it has become so popular. There are many other advantages of algorithmic trading. Here are some.
1. Speedy Trades
Because algorithms are written in advance and are implemented automatically, the speediness of trading is the major advantage. Trades are made within fractions of a second, way faster than humans can make out.
2. Increased Opportunities at Better Prices
Because of algorithmic trading, scanning as well as executing several indicators at a time is possible at a great speed that humans cannot do. As trades can be scanned and executed at a high speed, there are increased number of opportunities at better prices.
Another major advantage is precision. Because a computer is executing your trades automatically, the pitfalls of putting in an incorrect trade by mistake that come with human traders are avoided. Manual entries carry a high risk of purchasing a wrong pair of currency or for a wrong amount, whereas a computer algorithm is double checked to ensure that a correct order is made.
4. Removal of Human Emotions
Human trades are more vulnerable to be affected by emotions which result in irrational decisions. When you use algo trading, this possibility is eliminated. Fear and greed are two major emotions that often cause poor decisions in the trading, which are removed in algo trading.
5. Ability to Backtest
Ability to backtest is another major benefit of algo trading. As traders are unable to operate their system on previous data, it’s hard for them to know which parts of trading system work and which doesn’t. Algo trading makes it possible for you to operate the algorithms as per the past data to check if it would have worked before. This offers a great advantage since it allows the trader to remove any faults in the trading system prior to running it alive.
6. Decreased Transaction Costs
Decreased transaction costs are also one of the major benefits of algo trading. Algo trading allows users to skip spending a lot of time to monitor the markets. This tremendous reduction in trading time lessens transaction costs due to the saved opportunity cost of continuously monitoring the markets.
“Algotrading – trust mathematical algorithms with your investing decisions” this is the motto of Algos4Alpha.com and they teach you how to do it regardless of whatever level you are at trading. Visit their website for more information.