Why is algorithmic trading preferred these days?
Let’s see how beneficial algorithmic trading is contributing to the financial industry.
- Better than manual trading:Algorithmic trading is preferable to manual trading for several different reasons. By doing so, it eliminates human error, performs mathematical tasks, and never misses out on trading opportunities.
- Beneficial if applied to the right strategy:Algorithmic trading, which is faster than manual trading, helps in obtaining the best price in line with the specified strategy. It also guides you in making more systematic and strategic decisions by back testing the strategy on very large data sets and managing multiple orders on a large scale.
- Zero human emotions: We can count on the fact that machines don't have feelings, whereas, this is a huge disadvantage in manual trading. Fear and greed can cloud your judgement in making the right decision. Machines do not make decisions based on external factors because they simply follow what is written in the program. When you realise that the majority of market traders are not driven by emotions, you are automatically put on the defensive, making Algorithmic Trading a necessity. The chances of success are significantly higher when you remove emotion from the equation.
- Trading that saves time: Algorithmic trading is the most effective when it comes to time savings because it simultaneously monitors and trades in multiple financial markets. Algorithms automatically execute trades based on market conditions, trends, and instructions such as stop loss, stop limit, and so on.
- Risk management: Controlling your risk when trading is essential to minimise your risk of suffering losses as a result of stock market trading. Risk management entails identifying, evaluating, and mitigating risks that typically arise when the market moves in the opposite direction of expectations. Management of risk improves hugely when risk parameters and rules are in-built into the algo based trading system.