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July 2, 2018

New Ideas in Trading Are Bringing a Better Range of Options

One of the most significant reasons why algorithmic trading has become so popular in recent years is because of the many advantages that it has over traditional methods of trading. Investopedia defines algorithmic trading as the process of using computers that are programmed to follow a limited set of instructions for placing a trade, to generate profits at the speed and frequency that is impossible for a human trader to match. It encourages a systematic pattern of trading to eliminate the human impact on trading. The benefits of algorithmic trading are substantial.     

Algorithmic trading strategies require the algorithms to be written beforehand so the instructions can be automatically executed. The main benefit of this is the speed at which trades can be completed. With algorithmic trading, the rate of the transactions is so fast that it is difficult for a human being to notice. You can scan and execute multiple indicators at a breakneck speed that is difficult to spot. This enables trades to be carefully analyzed and run much faster than manual trades and provide you with better opportunities.  


Just like with manual trading, it is imperative to have accuracy when conducting algorithmic trades. Accuracy is the key to obtaining better results. When a computer automatically executes the trades, you can avoid the pitfalls of accidentally putting in the wrong information, advises the experts at Nasdaq. Trading manually can result in the buying of the wrong currency pair for the wrong amount, where with computer trading there is little room for error.    

Human emotions also play a significant role in trading. They often get carried away with their feelings that can quickly lead to irrational decisions being made. Algorithmic trading helps to remove the errors before live trading on the market can begin. It also allows you to backtest. Being able to know the pattern of trading that works correctly and the techniques that don't is a massive undertaking for human traders. Algorithmic trading enables the backtesting of systems to determine which ones failed and which ones worked.    

Reduced Costs   

With algorithmic trading, you aren’t at risk of losing all that you’ve earned. You don’t have to spend your time checking the markets because trading can be completed without your immediate and constant supervision. The time that you spend monitoring the market is drastically reduced, giving you the opportunity to participate in other activities. Without the constant need to have a human trader watch the market, you can also experience reduced transaction costs with each trade that is completed.   

Algorithmic trading allows you to utilize computers with the goal of making more money with little effort. However, it is essential that you make sure that the system you choose is thoroughly tested and that the required limits are set. Algorithmic trading provides you a more systematic approach to active trading than you would ever get with a human trader’s intuition or instinct. Let the many benefits of algorithmic trading help you earn more money quickly without having to waste your valuable time.    

The views and opinions expressed herein are the author's own, and do not necessarily reflect those of EconMatters.

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