Algorithmic trading is an automated trading method that uses computer calculation tools. It is becoming increasingly common on the financial markets.
Between 2006 and 2010, the proportion of stock market transactions made through algorithmic trading robots rose from 35% to 85% on average. These statistics highlight the colossal growth of automated trading. Widely used by major financial institutions, it is increasingly of interest to individual traders.
Here is a comprehensive summary of the information you need to get started in automated trading and increase your profits on the financial markets.
Algorithmic trading, also known as "automated trading", is a trading method that uses computational tools called "trading robots". These are capable of taking positions on the markets and executing buy and sell orders autonomously, when certain conditions pre-established by the trader are met. They thus enable trading with no human intervention. This practice has developed in parallel with technological advances, particularly the increase in computer processing power, and the gradual dematerialization of financial markets.
Widely used by the largest high frequency trading institutions, algorithmic trading can take into account many key factors in stock market investing, such as :
It is therefore a particularly effective and profitable way to optimize your gains on the financial markets, and is of great interest to individual traders.
Automated trading is based on the high execution speed of the algorithms, due to the computing power of the computer. The robot interprets market fluctuations in record time, focusing on a list of financial instruments selected in advance by the trader. The trader also determines the conditions under which the algorithm should place a buy or sell order. Once these parameters have been set, the robot executes the orders at a speed that is totally out of reach for a human investor : a few thousandths of a second. It thus enables traders to constantly multiply capital gains. To carry out these operations, the robot cross-references all sorts of information used in traditional technical analysis (volatility, trends, market history, etc.) in real time.
Algorithmic trading is mainly used for traditional products, such as stocks, currencies and futures, and in liquid markets.
Automated trading users can range from computer programmers to data scientists, via individual traders who have never coded before. An investor seeking to implement an algorithmic trading strategy and wanting to program the robot themself has to acquire some basic computer programming skills. It is possible to program this type of robot on different operating systems, by setting the working instructions correlated to the trading strategy previously established by the trader.
Investors with no programming skills can also use algorithmic trading software. Software can be a very effective tool, but gains generated will depend largely on the strategy pre-established by the investor. Settings include the following :
Algorithmic trading is an automated form of stock market investment, using complex algorithms and the computing power of computers. In order to get started and maximize profits, the trader can either program a trading robot - which requires programming skills - or use reliable software.