What is Algorithmic Trading: Five Facts of Algo-Trading

Posted by Traders Gurukul on February 19th, 2021

Did you know that more than 80% of the movements in the US Stock market and in Forex market are made by machines, with algorithmic trading robots? Fortunately, with major technological advances, algorithmic trading strategies are now accessible to all types of traders in almost all major markets. This form of trading has become so increasingly popular that more and more people are joining online algorithmic trading course at affordable prices, to learn Forex trading. If you want to know more on this particular subject, it is recommended to keep reading the article.

What is algorithmic trading?

One of the biggest attractions for Algo-trading is that they eliminate human error. Managing emotions like fear or greed is the biggest obstacle for all traders – a problem that algorithmic trading strategies simply don't have. Many traders are also attracted to the fact that an algorithmic trading strategy can be maintained 24 hours a day. It is just one of the reasons why they are not only used by independent traders but also by hedge funds, investment banks and large mutual funds. In the algorithmic trading, the execution of orders is automated through programmed trading instructions. These automated instructions are lines of code. These instructions can include details, such as when to buy, sell, graphical analysis, volatility analysis, price arbitrage analysis, etc.

Index rebalancing

Most pension and retirement funds often invest heavily in index funds that need to be 'rebalanced' periodically to adjust to the new prices and market capitalization of the underlying securities. This type of strategy is only dominated by algorithmic traders since the transactions are made in Nano-seconds to obtain the best prices.

High Frequency Arbitrage Trading

Arbitrage refers to the practice of finding opportunities in the price difference between two or more markets. This can happen when the same market is trading through different currencies. Only algorithmic trading robots can take advantage of this price difference since it occurs in a matter of a few seconds, or less.

Mean Reversal Trading

This type of strategy is generally based on a mathematical model that assumes that the high or low price of an asset is temporary and that it will return to its average over a period of time. Technical trading indicators are widely used in mean reversal investment strategies.

Machine learning and AI trading

A relatively new form of algorithmic trading is the use of machine learning and artificial intelligence. With machine learning and AI trading strategies, the trading robot keeps up to date with what has worked and what has not.

Momentum trading that follows the trend

It is a very popular type of algorithmic trading strategy used by all types of traders, both large and small. The idea is that if there is a trend, the market could continue in that direction until there are signs that it has come to an end.

So, now you know the basic of Algo-Trading. If you are an independent trader and want to learn Algo-trading for better investment in future, you can join algorithmic trading course. This course is ideal for both the beginners and professional traders.