The Best When It Come to Algorithmic Trading
The algorithmic trading has greatly increased in the past years. Such would help to improve the market quality and is it best to encourage this? There are a lot of those who are saying that algo trading helps in improving such liquidity and also boosts the informativeness of the quotes and prices.
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 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.
Such algorithm has such benefit of scanning as well as executing on different indicators at a speed and which is far from what human can do. 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.
Also, a benefit to such 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. Through manual entries, it is a lot more likely to purchase the wrong currency pair or such wrong amount as compared to the computer algorithm which has been double checked to ensure that there is correct order 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. A reason why this is one advantage is due to the reason that the human trading is prone to emotions that can result 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 you can also get from algo trading is that chance to back test. It can be difficult for the traders to know the parts of the trading system work and what doesn’t work because they cannot run their system on previous data. With algo-trading, you can surely run the algorithms based on past data to be able to see if such worked in the past. 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.