Why is Algo Trading becoming popular?

The two most prominent methods of trading used in stock markets are manual trading and algo trading. Over the years algo trading has significantly gained popularity in the market. As it undoubtedly provides accuracy while trading and also implements faster trade execution. Whereas most of the people still opt for manual trading because they lack knowledge about the algorithms. A manual trader can still make profits only if he has gained sufficient experience over the years. 

People who are smart and have the ability to make the right decisions in the fluctuating market make profits. Half of the traders still stick to the standard trading practices. On the contrary, most of the smart traders have switched to technology-driven trading practices. Algo trading has gained so much popularity among traders as it holds a multitude of advantages. And it is even considered the best approach as it widens trader’s mindset. 

How does Algo trading works?

The first thought that strikes the mind is how can someone automate their trading without human intervention. Well, it all happens with the help of computer-coded programs which are already determined and set. These coded programs or strategies help to automate buying and selling decisions in the market. A set of specified instructions or strategies are deployed which executes the trade automatically. The computerized bots monitor your trades and protect you from making losses. That’s the reason algo trading results in a high success rate. 

Why  Algo trading?

The main reason why traders opt for algo trading is that it provides ease of work. Through this method, traders can execute huge amounts of trades without manually assisting them. Algorithmic trading aims at reducing the emotional aspects and provides effective execution. Through this method, the trading orders are placed instantly which eventually saves trading fees.

Is Algo trading profitable? 

The main areas that make algo trading stand out from manual trading are explored below. Have a look to know why people jump to algo trading and end up ditching manual trading. The following points tell us how algo traders make profits by making full use of it’s benefits:

 1.Lighting speed and efficiency:

The main feature that attracts the traders is the swift speed algorithms offered. They can easily execute massive chunks of traders just with one click which is beyond human ability. Leaving no chance for errors hence providing accurate efficiency. Whereas manual trading can be a time-consuming process. Due to the lighting speed algo traders execute huge volume of trades and make massive profits.

2. Reduced emotional influence:

Here the trading happens on the computer-coded programs leaving no space for human influence. Therefore the decisions made are more disciplined and precise. The emotional feelings of greed and fear can influence our trading habits and we can end up with poor investment decisions. Algo aims at reducing human emotions thereby making way for computer supremacy. 

3. Optimization and back-testing:

The best part about algorithmic trading is that it enables backtesting. This means we can assess our strategies with previous data, refine our methods and enhance our performance. Before setting an algorithm in the live share market the traders can easily back-test it with historical data. In layman’s language, it means that the trading methods can be repeated in past markets. Backtesting helps to optimize our strategies and also provides a proper understanding of prior performance. This makes algo trading worth it for smart traders. 

4. Trading at the best price: 

Every trader wants to invest less and eventually desires to earn more. Algo trading offers a better price investment as a huge volume of trades can take place at one time. Thereby reducing the transition cost and allowing the traders to earn handsomely. In the traditional trading method, traders have to pay for every trade they execute. But that’s not the same in algo trading: massive amount of trades can be completed at lower prices. 

Is algo trading really worth it?

Algo trading has gained popularity due to the advantages it offers in the volatile market. This method of trading allows the traders to make use of the market opportunities. And allows them to deploy complex strategies with precision and better speed. Furthermore, it helps to lower the human emotions which influence trading habits. So that smart decisions can be made with rigorous techniques to increase optimization. This technique is more systematic and organized than manual trading making it worth it.

Now here’s the catch, even though algo trading has a plethora of benefits which makes it popular. But it also comes with inherent risk factors of making a loss. To become a pro algo trader one needs to have a hold over the expertise and knowledge about computer codes and effective strategies. Don’t always follow the crowd, you will eventually make losses. Having in-depth knowledge and financial experience in this field will surely add value to your portfolio. Become a smart algo trader by polishing your skills and wisdom in the trading world. Hopefully, you got an insight as to how and why algo trading or “algorithmic trading ” is winning popularity over the masses. 

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