Algorithmic trading is an investment mode
based on a mathematical model that offers position-taking decisions instead of
the usual trader. This method began to be developed in the 1980s thanks to the
dematerialization of stock market orders. Remember that today, it takes barely
13 milliseconds to make a round trip by cable between the NASDAQ stock exchange
and that of Chicago and that more than 70% of American stock transactions use
this trading.
The latest algorithmic trading software also
offers decision strategies in that IT can react instantly to the slightest
change in price and is, therefore, faster than a human trader.
One of the prerogatives for using this type of
trading is to use it on the market with high liquidity and on classic products
such as stock market shares, currencies, or interest rate products.
The detailed operation of algorithmic trading:
There are two types of activities in
algorithmic trading with assisted stock market operations and automated
trading.
The former is, in a way, the basic version of
this method since the mathematical models used provide trading suggestions that
investors are free to use or not by placing their orders themselves.
Automated trading is rarer and more complex in
that it carries out transactions directly 24 hours a day and according to the
strategies set. They operate on the principle of truncating large orders into a
series of market-assimilable lots to reduce brokerage costs by placing orders
directly via a machine.
Of course, this mode of trading is regulated
since MiFID 2 has published various rules and definitions that apply to it.
Thus and since 2016, companies that transmit at least two orders per second on
one instrument and more platforms or four messages on several instruments and
one platform are considered high-frequency trading operators.
Who is algorithmic trading for, and what do
you need to use it for?
Algorithmic
trading is not intended for novices. Indeed, algo trading India
algorithms are accessible to programmers who define their work instructions to
follow a precise and thoughtful investment strategy. However, they are designed
to work on different operating systems.
Transactions carried out by these instruments
are, of course, encrypted. The machines thus launch calculations with very high
power because they make it possible to cross-check different sources
simultaneously, considering the history of the market, volatility, and other
elements of this type.
Differences between algorithmic trading and
automatic trading
The fundamental principle underlying all
technologies is that the human factor (more than the machine factor) always
remains the most reliable in the face of multi-variable decisions. For this
reason, it is fair to say that automatic trading that people develop is always
superior to that produced by programs (algorithmic trading).
So an experienced trader with flexible
thinking skills and adapt to market movements is better than algorithms. How
then can an inexperienced trader try to make money?
Better to rely on algorithmic trading or automatic trading, or
instead that you copy an experienced trader?
Obviously, in light of the facts, copying the
trades of experienced traders would be best.
Algorithmic trading: Is this a scam?In
some cases, some unregulated platforms gave the impression that it was indeed a
scam. All of them claimed to use artificial intelligence, but algo trading
india itself is not a scam. Letting systems programmed to process historical
data and news can help us in our investments is not a scam, just as a knife is
not necessarily a weapon if used correctly. The important thing is to rely on
those who are experts in trading and implement a policy of total transparency.