Algo Trading is automated trading done using computer programs. The Algo trading platform takes decision of trading based on market data and pre-defined parameters. Algorithm trading eliminates a need of manual intervention. These type of trading is generally used by professional traders who understand in and out of trading. It is less popular trading technique in India. In this post, we will discuss about Algorithmic Trading in detail including key features, advantages, disadvantages and various trading platforms.
What is Algo Trading?
Algo Trading is abbreviation of Algorithmic trading. As name indicates it is method of using various pre-defined algorithms and computer programming for doing stock trading. There are various parameters involved here such as time, price, volume etc. These type of software use artificial intelligence for faster data processing and complex calculations.
The concept of algorithmic trading is very simple and logical. The steps are think your trade, make code, test and make various rules, execute your trade and follow the rules.
As you are not familiar this term may sound unusual to you. However, believe me algorithmic trading is future of stock market trading.
It is highly technology driven concept and provided by very few stock brokers.
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Key Features of Algorithmic Trading
- This type of trading can be use for creation of testing of various quantitative strategies. It can be used of stock trading, forex, future as well as crypto currencies.
- You can get access to all types of market data including indicators. It will help in deciding or formulating strategies.
- It is fully automatic and powered by artificial intelligence. Thus eliminate emotional quotient and remove all type of trading biases.
- This trading helps you to cut down human labor. It also helps you to save your time as everything is automated.
- It gives very good user interface and detail reports for analysis and strategy development.
- There are many algo trading software out there that support multiple instruments and markets to facilitate a wide range of trading strategies.
Advantage of Algo Trading
- Algo Trading is emotion less trading. It helps trader to keep emotional quotient aside while taking trading decision.
- This type of trading help trader to manage multiple open positions. Thus it is possible to manage high volume trade using this option.
- Trade rules are already defined and executed automatically. It brings trade discipline and works in highly volatile market also.
- It is highly scalable model where you can scale up to multiple levels.
- As it is automatic trade method you will never miss opportunity to trade.
Disadvantages of Algo Trading
- Automatic programming is used in this type of trade. Any technical error or programming mistake create a major problem with trading.
- Although it is automatic trading you will need monitor your trade frequently. You cannot fire and forget. There are multiple dependencies such as connectivity, mechanical failure, computer crash etc.
- You will need higher capital in order start this type of trading.
Algo Trading Platforms in India
There are very few stock brokers that offers algo trading platforms in India. Few popular algorithmic trading platforms are –
Should you use Algo Trading?
Algo trading is very good automatic platform for doing trading. You can make use of this platform for making money via trading. However, you should make use of this platform carefully. As it is automatic trading powered by calculations it is risky.
Please note that this type of trading is not advisable for beginner. The trade is complex in nature where multiple strategies are involved. It cannot be grasped or learned easily.
If you are experienced or professional traders with very good understanding of risk and rewards in the stock market you can use this trading. Additionally, if you have expertise in technical analysis and you want to automate your trading you can use this trading. Wealth managers use it for automating trade on behalf of clients.
If you want to learn Algo Trading and become trading professional, you can start with books. There are many algorithmic trading books available in the market. You can also refer to online webinar, podcast, online portals. You can also learn from professionals.