Automation is taking place everywhere in this age of a rapidly growing technologically advanced world. AI-based software, applications and algorithms are being developed for every field making the execution and operations not only faster but also more efficient and accurate. Financial market is also getting the advantage of such developments.
Yes, I'm talking about the algorithms-based trading practice that is now trending in the financial markets. Algo trading has become popular among traders in equity, commodity and currency markets due to amazing benefits. Today we are going to share with you some of the advantages of algorithmic trading that you should know with some of the useful tips to start algo trading or choose the right algo trading platform for the equity market.
What is Algorithmic Trading?
Sometimes also referred as high-frequency trading, Algo trading is an automated trading solution developed through machine learning-based computer programming to place trade orders automatically as per the market situation and defined strategies.
Also Read: Top 10 Different Types of Trading Strategies in Stock Market
Algo software or applications can identify profitable trading opportunities as per the trend in the market and even in the changing market conditions with the capability to place the order itself and book the profit or exit from the trade positon at best timings.
Also Read: What are the Best Entry and Exit Indicators in TradingView
In Algo trading, you can choose different types of trading strategies as per your risk-taking ability and fund availability. Algo can perform millions of transactions in a fraction of a second generating the high volume of trades in the shortest time with a high level of accuracy. Apart from performing high-frequency trading, Algo has several other benefits too.
6 Benefits of Algo Trading:
#1 High-frequency Trading
It is well known to everyone that computer-based programming and applications can perform any task at a very high speed compared to humans. Similarly, Algo trading software can execute the transaction at lightning speed generating a high volume of trade within a few seconds. You can earn income from low margin but high volume of trade with Algo.
However, the speed of the Algo software can vary depending on the capability and functionality of the computer hardware and software system in various market conditions. But in highly volatile market conditions like in the option market, it can take quick actions to execute the transaction when the parameters meet as per the defined trading strategy.
Also Read: How to Trade in High Volatile Market: Best Trading Strategies
#2 Multiple Transactions
Similarly, Algo trading software is capable of executing multiple numbers of transactions at a time for different trading strategies. This means you can set your Algo program to place different types of orders at the same time as per your defined trading strategies.
In the derivatives market, while trading in options, there are various trading strategies in which you have to enter into different types of trade positions at the same time. Algo trading software can do this for you making your multiple transactions easy and faster for better results.
#3 High Accuracy with No Errors
One of the advantages of Algo-based trading software is, it works with high accuracy with zero errors. Until and unless there are any technical glitches or bugs that affect the performance of the computer system, Algo works well. Algo works on a predefined set of rules to perform as per the market conditions, so being a computer system there is no chance of errors.
The Algo software can work accurately in the high volatile market conditions. The accuracy is not compromised even if it is instructed to perform multiple transactions at a time to generate a huge volume of trades even multifaceted trading strategies. To check the accuracy level you can back-test the Algo software to place orders for various trading strategies.
#4 High Efficiency at Low Cost
The Algo-based trading software is designed and developed to perform all types of trading-related activities like placing orders, booking the profits or exiting from the trade positions as per the set stop loss or unfavourable market conditions. It is efficient enough to perform millions of transactions ina fraction of a second without performance lagging.
Also Read: How to Set Target Price and Stop Loss in Intraday Trading
And the ability to perform with high efficiency saves your time and cost in deploying the people to perform such tasks. When a huge volume of trades takes place within a few seconds at a very high speed your cost of trades become low making your transaction cost low. And this cost-effective trading mechanism improves your rate of return in trading activities.
#5 Mange with Huge Data for Analysis
The Algo trading software can perform the analysis part like fundamental analysis and technical analysis and make the right trade decisions based on these analyses. And the best thing is it can take into account huge amounts of data to perform such analysis for better accuracy. Algo can analyse any level of data from a trading point of view and can make quick decisions.
Also Read: Technical Analysis vs Fundamental Analysis: Which is Better
In the stock market, you can see an immense amount of trading data generated every second in thousands of stocks and underlying securities. In Algo trading, you can utilize every amount of data for analysis with a customised option to select the data range. This again saves your time and efforts while performing the research and analysis with accurate results.
Also Read: What to Research & Analyse Before Buying a Stock of a Company
#6 Emotionless Unbiased Trading
In trading, emotionally motivated decisions can be risky or sometimes unfavourable and can cost you in terms of making your trade decision loss-making. Humans can make emotionally biased decisions that are influenced by fear of greed, risk and impulsive actions. And in trading such situations come every day when you have to make quick decisions in excitement.
On the other hand, Algo trading software is free from such emotions as its functionality is based on a predefined set of rules and programming to take right actions as per the market conditions and when the defined criteria is fulfilled in the computer system. With Algo Trading you will enjoy the emotion-free trading experience in all types of trading strategies.
Also Read: Short-Term Trading Strategies that Work in the Stock Market
How to Choose the Right Algo Trading?
To take advantage of Algo trading, you have to choose the right platform to provide the algorithm-based trading system. Algo software has different features to operate in the different segments of the various types of financial markets like equity, commodity and currency. In respect of the same, we are sharing some of the useful tips to choose the right Algo trading software.
Useful Tips for Algo Trading:
Pick the Advance Algo Trading App
The Algo trading software must be featured with operational capability to perform in all types of market segments like equity cash, future and options. The Algo should be integrated with all types of trading strategies that can be applied as per the various market conditions. Here as per your investment goals and risk taking capability, you can choose the right trading strategy.
Also Read: What are the Most Popular & Profitable Algo Trading Strategies
Hence, you need to be very careful while choosing the right Algo, integrated with different types of trading strategies and make sure it has the trading strategy that suits your trading style. The Algo software should be developed with advanced programming and algorithms to work in various extreme market conditions with the best level of accuracy.
Back Tested Trading Strategies
The Algo trading application or software must have the backtesting facility check the authentication and performance. It should have the facility to use the historical data to backtest the strategies you use to trade and can give the results as per your expectations. You can back-test the Algo with different strategies like entering or exiting from the trade position as per the predefined terms and conditions set at the time of placing such orders.
Strategies for Option Trading
Trading in the equity market or option segment you have to choose the right trading strategy to perform as per the market conditions with the best accuracy. Apart from delivery-based trading or intraday trading, there should be all types of option trading strategies that you can choose as per your risk-bearing capability and availability of funds.
There are various popular trading strategies in Algo like News-Based Trading, scalping mean reversion, Index Fund Rebalancing, Arbitrage, Inverse Volatility Trading and machine learning trading. Make sure the Algo software has most of the strategies that can be used in various market conditions and work as per the rules defined in the strategy.
Monitoring and Optimization
Though,Algo trading software is an automated trading system that can perform various tasks itself but still needs to keep an eye on the trading activities and condition of the market. Based on the market conditions you can tune your trading strategy or modify the stop loss points and exit levels.
As per the change in the market trend, you can choose another strategy or modify the existing strategy, which also helps the Algo software learn from your activity and perform in the same way when such a situation comes again in the market.
Also Read: Best Algo Trading Platform and Trading Strategies
This practice will help you to make the best use of Algo and also keep an eye on the performance and efficiency of the algorithms in diverse market situations.
Manage the Risk Effectively
Managing the risk effectively while trading with Algo is also very important to minimize the possibilities of losses and maximize your returns. There are several types of risk associated with the stock market systematic risk, unsystematic risk, operational risk and technological risk that can affect the efficiency and performance of the Algo software.
Also Read: Types of Risks Associated with Investing in the Stock Market
To manage such risks with Algo you have to act proactively taking the right action at the right time. For risk management in Algo trading, you can use strategies like trading with strict stop losses, position sizing, diversifying your investment and trading with a hedging strategy. It will protect your trade positions from various types of risk making your trading experience more profitable with Algo.
Keep Learning About Algo Trading
Trading with the Algo-based software you need extra technical knowledge and skills to define or choose the right strategy and set the parameters or any other rules or criteria in Algo. This machine learning-based trading software can perform various types of repetitive tasks itself with the capability to take quick action at the time of entering and exiting into the trade positions.
But to activate or initiate any transaction you have to set everything manually and then wait for the results. And to make the best use of Algo or utilize the efficiency of such automated software at its best levels you have to keep yourself updated and well-informed about its functions and how to use these functions. Keep learning about the Algo trading software and how to use critical trading strategies in various market segments like in option trading.
Also Read: Option Trading or Intraday Trading Which is Better for You
Summing-up
Algo trading has no doubt brought a new revolution in trading and investing providing the automated trading solution for various financial markets across the world. You can use it for equity, commodity and currency trading for cash, future and option trading with a wide range of trading strategies available to choose from as per the market conditions.
It not only saves your time and effort but also performs with high efficiency and accuracy giving you promising results even in the various market conditions. But to make the best use of Algo trading you have to choose the right online trading platform providing the algorithm-based trading solution with the capability and features to trade with various strategies.
Also Read: Best Algo Trading Platform and Trading Strategies
Moreover, you also need to keep yourself updated and well-informed about the Algo trading, its functionality, features and mechanism to operate effectively and efficiently. You can back-test your strategy with Algo and also check the performance and accuracy of the software. So what are you waiting for, start your Algo trading journey right here with Moneysukh.
Also Read: How to Start Algo Trading in Moneysukh: A Best Algo Trading Platform
