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Due to the advent of digital technology and rapid electronic development, the share trading domain has experienced transformative changes over time. Today, there are multiple trading modes and numerous trading options for all types of investors. One of the most popular trading modes that have emerged over the last few years is algo trading, also known as algorithm trading.
Published on 11 January 2022
In algo trading , there is minimal or no human intervention, and trades are executed through defined computer programmes that assess market data on specific parameters. Algo trading mode involves the lowest brokerage fees.
Here is a quick guide to help you understand algo trading:
Also known as algorithm trading, black-box trading or automated trading, algo trading executes trades through a computer programme with pre-defined trading instructions. These instructions are also known as algorithms. Algo trading can likely generate profits at a much higher speed and frequency than a human trader. Algorithms in algo trading are based on timing, price, volume, etc., of the trade.
Algo trading enhances and automates the trading process. It also reduces human bias and the emotional aspect of trading activities. However, complete automation is not available for retail investors, and there is some human involvement in placing trade orders.
Different trading platforms levy different discount brokerages for algo trading . However, as compared to other investing modes, algo trading offers the lowest Indian discount brokerage.
Algo trading works on pre-fed computer programmes that function at a high frequency of placement and execution. These computer programmes contain specific instruction sets, which form the root model of trading. These instructions can relate to the price, quantity, time or any other mathematical model.
For instance, an algo trade model could have a trade criterion that specifies buy 60 shares of Company X when its 50-day moving average is above the 100-day moving average (average of day-to-day price fluctuations). Alternatively, another algo trade criterion could be to sell shares of Company X when its 50-day moving average is below the 100-day moving average.
Based on the pre-fed trade criterion, the computer program monitors the stock price and buys or sells the shares only when the defined conditions are met. In this case, you do not have to continuously monitor the stock prices or manually place orders. The algo trading platform places the trade on the terminal and forwards it to the exchange, which reduces human intervention and simultaneously offers discount broker fees.
Overall, algo trading is a successful trading mode with the potential to dominate the share market in future. If you are interested in algo trading, choose a reliable platform that offers advanced algorithm trading functionalities and discount broker fees. Whether you are a new investor or an experienced one, algo trading can prove fruitful if followed diligently. The best part is that it comes at minimal Indian discount brokerage.
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