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A Know-How of Algorithmic Trading

By CIOReview | Wednesday, July 3, 2019

Algorithmic trading can now be performed on an easily programmable rule-based strategy; well-researched data leads to fruitful investments.

FREMONT, CA: Algorithmic trading is often known as high-frequency trading technology. The method analyzes every trade in the stock market and identifies the liquidity of opportunities to take strategic and intelligent trading decisions. Algorithmic trading is the term used for automated trading, in which there are a particular set of formulae or algorithm based on the price and accurate timing for a profitable trade. It requires the use of powerful computers to run complex mathematical formulae in algebraic equations.  The algorithmic business offers the generation profits with high speed and frequency, which is impossible to achieve by the human traders.

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Algorithmic trading delivers many benefits such as placement of immediate and accurate trade orders at best possible prices, it also cuts down the transactional cost and reduces the risk of manual errors with the simultaneous tracking on the trade timing correctly and instantly. The regular analysis also helps in the strategic decision parameters for the investments. It can be applied in many forms of trading and investment activities. Algorithmic trade helps the mid to long term investors, short term traders, and systematic traders.

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The impact of algorithmic trade has the potential of volatility, liquidity, and crashing the market. With the high jump of the market’s volatility, the fundamental investors may find it difficult to enter the market; the automatic trade executions by the computers should increase the liquidity which again will create the issue at the time of significant market crash as the instant flow will cause a rapid collapse in the prices of the firm. If the majority of the traders will start following the formula, at the market crash there will be no buyers left.  The effect of the algorithm can be measured equally with both the advantages and disadvantages; the regulators need to control the implementation of the strategies according to its need in investments.