Algorithmic trading, also known as algo trading, is the use of computer programs and algorithms to automatically execute trades in financial markets. It involves using mathematical models and statistical analysis to make trading decisions, rather than relying on human intuition or emotions.
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| Source -Investopedia |
The process begins with a trader or a group of traders developing a trading strategy, which they then translate into code that can be run by a computer. The algorithm is designed to identify specific market conditions or patterns, and when those conditions are met, it will automatically execute trades according to the predefined rules.
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| Source-Sketchbubble |
Algo trading can be used for a variety of financial instruments, including stocks, bonds, futures, and currencies. It is commonly used by large financial institutions, such as hedge funds and investment banks, but is also available to individual traders through online trading platforms.
Source - ICICI Direct
Advantage & Disadvantage of algo trading include increased speed efficiency, and accuracy in executing trades, as well as the ability to backtest strategies and analyze large amounts of data quickly.
However, it also carries risks, such as the potential for the technical glitches, and the need for constant monitoring and adjustments of the algorithms
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