Benefits of Algorithmic Trading

Growth and finance are the 2 sides of the same coin. The growth has provided benefits to each and every institution related to the finance field. The growth has the best impact on the market and is infinite. A large number of innovations have taken place in recent years. The biggest innovation is algorithmic trading.

This is software which is being used to execute the trade in proper regard to the market trends. This has lead to the automation of the trading process. The categorization has been done as:

  • HFT algorithm: this is the short form for high-frequency trading. This helps to trade on the basis of the information. It helps to analyze the data and give proper information that will lead to a trade. These are placed in some seconds only. The profits are earned on the basis of information only which are only the main things associated with these kinds of trading.
  • Execution algorithm: this is the main thing of the large trades that take place in the market. They are places in regard to the market trends and timing and the main aim is to reduce the costs of the brokers by slicing the orders.

Some of the merits because of the introduction of Algorithmic trading are:

  • The efficiency of prices: prices are always efficient because the whole concept is based on trading on the basis of information only. All the information will lead to a market price based on the information of the trends which will affect the price and the price will automatically adjust according to the trends.
  • Competition promotion: this has increased the competition among all the companies in this particular field. All the companies compete with each other to execute trades at the best price.
  • Placing of large trades: this is all about placing the largest of the deals at the best possible costs. This is based on the trends of the market and also on daily basis information. One can also reach the minimum execution price of the deals using these techniques.
  • More liquidity in the market: this concept has helped in providing the best of the liquidity in the market because of the best buy and sell information.
  • Lower cost: the people involved in brokerage systems used to charge huge brokerages for such acts and services provided by them. Algorithmic traders have provided people with low brokerage high exposure stock brokers in India and even this has to lead to the reduction in costs for the investors.
  • Lower spreads: due to this the overall bid gets decreased and the investor gets the best price for their investments which has even reduced the costs and increased the margins.

There are various demerits of this concept as well. Some of them have been discussed as follows. The unhealthy competition is even promoted as one can place fake orders and later on might cancel them. There might be people who will be judging the trades are genuine or not but companies will take full advantage of this thing.

Leave a Reply

Your email address will not be published. Required fields are marked *