Earlier, the algorithms had only been straightforward decision-making systems. Nevertheless, throughout time and with the use of AI concepts, it has developed into sophisticated and intelligent systems that can foresee and speculate to increase profits for the traders. Algo trading is a type of computerized trading system that utilises a set of guidelines or an algorithm created by professionals when conducting trade operations. The algorithm is created in accordance with the requirements for quantity, timing, pricing, and other guiding elements which are important while making trading decisions. By using these strategies, a lot of trades can be completed rapidly and without error.
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BENEFITS OF ALGO TRADING:-
(i) Quick and Error-Free Transactions:-Algo trading allows for faster decision-making and transaction execution than is attainable with manual processes. Additionally, since there are no human manipulations, there are no errors or fewer errors when analysing numbers and other elements, which results in improved accuracy.
(ii)Lower Transaction Cost:-The cost of the transaction is also lowered because traders can quickly complete numerous transactions or trades at once. The overall cost of trading is reduced as a result of the reduced need for manual traders.
(iii) No Human Interference:-Along with the elimination of human error in trading, this also decreases the probability that a trader will choose based on their emotions or psychology.
(iv) Implementation of Multiple Trades/Strategies:-Algo trading allows for the simultaneous scanning of numerous stock markets and assets, allowing for the execution of multiple trades using multiple techniques. It is almost impossible to swiftly and effectively analyze several elements manually.
(V):Backward Testing Possible:-Using historical and real-time data, the trading methods can be evaluated for efficiency and applicability prior to deploying Algo trading. As a result, before being used, the algorithm can be modified or corrected based on the test results.
Note:- High-Frequency Trading (HFT), which makes use of the ability to quickly purchase and sell a huge number of stocks across several markets depending on various algorithmic factors, makes up a substantial portion of today's algorithmic trading.
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