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What is Algorithmic Trading and How to Get Started!


— August 5, 2020

The foreign exchange market dates way back from ancient times. People who were known as “Money-changers” (helped others to change money and also took commission or charged fees) lived in the Holy Land in the times of the Talmudic writings (Biblical times).

Trading has evolved since then, and in the modern era, traders use algorithmic trading software. The beginning of the use of algorithms in trading in America started in the 1970s when the computerized trading systems were introduced to the financial markets.

Algorithmic trading uses computer chart analysis and codes to enter and exit trades according to parameters that are set, such as volatility levels and price movements. Trading algorithms will execute a trade on your behalf once the current market conditions meet the predetermined criteria. Put simply: algorithmic trading computers get the job done for you. Instead of spending a lot of time doing everything manually, the computer trades 24/7 for you, all while minimizing the mistakes.

As large institutional investors have to do with a large number of shares, they are the ones who make extensive use of algorithmic trading. It is also popular with the terms of algo trading, black-box trading, etc. and is exceptionally technology-driven. It has become more popular over the last few years.

What are the benefits of algorithmic trading?

Algorithmic trading has many benefits, and that’s why it has had such a big impact on the trading industry. Let’s take a look at seven benefits of algorithmic trading.

1. No human error

Artificial intelligence, isometric AI robot on mobile phone screen; image by Fullvector, via Freepik.com.
Artificial intelligence, isometric AI robot on mobile phone screen; image by Fullvector, via Freepik.com.

Trade without letting emotions get in the way of earning profits or cutting losses.

2. Benefit on rare or unusual events

Create algorithms to act on unique activities like the Dow closing 500 below its 20-day moving average.

3. Improve your existing strategy

Algorithmic trading strategies are very important. Use algorithms to finely harmonize risk management in your trading strategy, executing stops, and limits on your behalf.

4. Low maintenance

Set your algorithms up and let them trade depending on your schedule, 24 hours, day or night.

5. Backtest

Backtest and sharpen your algorithms against past data, to establish the best blend of parameters to buy or sell.

6. Increased opportunity

Choose or create an algorithm according to your strategy and maximize your exposure to opportunities in the underlying market.

7. They make it easier to enter the industry

A lot of learning time is required to be a good trader. It is a long process, and despite all researches and hours spent learning, long-term success cannot be guaranteed. An algorithmic trading software could up your chances for success, helping you understand crypto trading easier and minimize the risks.

Conclusion

The introduction of algorithmic trading has made it easier for everyone to get familiar with the trading world. Anyone can try trading regardless of experience or skill level. Algorithmic trading is rapidly becoming standard for short term traders and longer-term fund managers. Moreover, as markets become more efficient, opportunities are smaller, and traditional methods are becoming less viable. Algorithmic trading systems can monitor more securities and remain feasible by utilizing smaller but more numerous opportunities.

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