Computers have completely changed the way humans used to look at survival. Digitalization in each and every field is evident.
Everyone has grown a lot more dependent on computers for all their chores and jobs.
And why should they not?
With great computing capabilities, precision, and accuracy, computers can comfortably accomplish the task of a hundred men within a fraction of the time it would usually take.
The adoption of computers in stock trading was inevitable.
With the growth in markets all around the world, a more agile and more reliable method was needed.
Stock Exchanges began their transition from conventional approaches to advanced computers in the early ‘70s. By the ‘90s, electronic networks started providing the much-needed efficient and remote access to traders.
Computers were being used in place of human traders as they were swift, effective, and productive, all at the same time.
Soon pre-programmed trading instructions were being used by traders to account for variables such as time, price, and volume.
The term Algorithmic Trading can be invariably related to autonomous trading. It refers to the use of computer algorithms to predict markets and stock exchanges.
In 2001, a team of IBM researchers illustrated that in experimental laboratory variants of the electronic auctions used in the financial markets, two algorithmic strategies, i.e., IBM’s MGD and HP’s ZIP (source: Wikipedia) could outperform humans.
Modern algorithmic trading is more agile than humans can even perceive. Trading is concluded within fractions of seconds with the help of pre-programmed algorithms.
Since the trading is done so quickly, the biggest virtue of algorithmic trading is that a lot of opportunities are present at better prices. It additionally lessens human error while selling or buying.
Alpaca Securities LLC offers robust tools that you can command to use for your algorithmic trading. It also helps people use the pdt rule and earn money for themselves while relaxing at home conveniently.
Algorithmic trading is definitely a game-changer.
Here Are 7 Ways That Prove The Aforementioned
1. Risk Management
Trading goes hand in hand with risk.
You can lose all your money and savings if you are not attentive enough.
To be safe, investors always undergo the process known as risk management in trading.
Risk management is the process traders use to recognize, measure, and probe the risk involved in trading before choosing to acquire it.
Algorithmic trading can automate this whole process.
Since risk management in algorithmic trading is done by binding laws and algorithms, the odds of losing are very slim.
Algorithmic trading is proving to be very profitable thanks to the great computational capabilities of modern computers and networks.
2. Swift Order Entry
Computers have a very quick response rate compared to humans.
They are very profitable when assessing the market.
Automated computer programs can react to shifting market conditions as soon as the criteria are met.
It is frustrating when a trade walks past a profit level even before the trade can be opened.
Algorithmic trading eliminates all these possibilities and is definitely a boon for all traders.
It can be tiring and frustrating to look for profitable trading opportunities as a human.
You have to be very tolerant, calm, and composed at all times to look for the right window where you can open a trade position.
Algorithm trading can remove this barrier and provide consistency to your trading needs.
You don’t have to sit all day looking at stock prices and market behavior.
Algorithm trading will do all that for you and that too, without any fatigue or weariness.
Trading requires consistency and commitment, and algorithmic trading presents you just that.
Losses are a vital part of the trading game.
It is always advised that you look at your losses objectively and don’t stress too much about them.
But humans are incapable of not feeling a sense of loss when their trades don’t perform well.
The discipline required to be a successful trader is very difficult to acquire.
A person who lost 2-3 bets might skip betting on the third one, even if it was a sure shot.
Algorithmic trading doesn’t involve human emotions while trading.
This not only ensures the best probable outcome but also makes sure the failures don’t affect the winnings.
Back-testing helps test the algorithm based on historical trading data to assess the accuracy of the algorithm.
Back-testing helps in determining the expectancy of the system.
It also helps traders to fine-tune an idea based on the findings from back-testing. Algorithm trading has this privilege over all other trading methods.
It doesn’t have to foretell an outcome, it has to comprehend that outcome, and back-testing helps in achieving that.
Algorithm trading provides precision like none other.
Stock trading demands a lot of precision. Computers and algorithms are the easiest way to achieve it.
It will further omit some errors that creep up due to hand-operated trading.
7. Cost Reduction
High-frequency trading or HFT is another method of trading that uses algorithms and computers to place thousands of orders in fractions of seconds. Such speed can never be achieved by a human.
Even if you wish to do that, you will have to employ a thousand employees, and it would incur heavy expenses on your part.
Thus, algorithm trading can accomplish scalable results for a fraction of the cost.
Algorithmic trading can easily help tradesmen purchase more orders very quickly.
It is getting more and more prevalent with each passing year.
Almost 70% of the traders in developed economies use Algorithms for their trading needs, whereas the number has increased to almost 40% in emerging economies like India (as of 2018, source: Experfy).
The time is not very far when all the trading will be done through algorithms.
It is anticipated that by the end of 2020, algorithmic trading will increase by a factor of 20% at least.
Algorithmic trading is going to be made compulsory at some point in the future. Given the perks and advantages that it maintains, it is very difficult to ignore it.
You should definitely try it for higher returns through trading.