Evolvement of Algotrading

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Sometimes, the big difference between success and failure lies in a simple trait: the ability to grasp all the advantages of the tools you have at hand. In the complex and somewhat aggressive world of financial markets, this ability might come in extremely handy. Those who understood how important these tools were developed Algo Trading.

How does it work?
Algo Trading is short for “Algorithmic Trading”, and the name provides significant insight into how it operates. The strategy is based on developing the right algorithm for trading, uploading it to the appropriate software – and that’s it. It might sound simple, but that would be misleading.

The origins and evolvement of Algo Trading
From the 1970’s, computing machines have been developed to enhance the ability to perform calculations for the purpose of predicting numbers that would reflect future fluctuations in the market. This concept changed the world of trading significantly.
One of the most prominent forms of algorithmic trading is high-frequency trading. Its main traits are high order-to-trade rations and high turnover. It involves complex algorithms, a tendency for short-term investments and high cancellation rates, and influenced high liquidity of the market. The general category of Algo Trading includes many strategies: trading ahead of index fund (or index tracker) rebalancing, pairs trading, delta-neutral strategies, mean reversion, index arbitrage, scalping, transaction cost reduction and more.
To make a long story short, algorithmic trading is not simply “letting the computer do the work for you”; it requires comprehensive and in-depth knowledge of the relevant software.

The major advantages of the Algo Trading
Algo Trading provides the human enthusiast with countless advantages, mostly by eliminating the “personal factor” whenever it may get in the way of making a profit. For instance:

  • A human being gets tired. A few hours of trading and his actions are affected and fatigue sets in. The computing system keeps doing the calculations with the same preciseness, 24/7.
  • Algo Trading eliminates the psychological factor. One might let one's emotions or personal inclinations to influence judgment. This cannot happen with a robot.
  • The machine can do complex calculation in seconds. A human may need hours or even days to achieve the same results. Being ahead of the events is the main the resource of Algo Trading’s profitability.

Be the wise, operating human factor behind the unbelievable force of the computer mastermind!