With the advent of time everything seems to be getting automated and trading among all the other things is no exception to the trend or rule. Somewhere we all are tired and sick of manual trading and relying on emotions and instincts for taking the right decision. Even though you may have good instincts or you may take your decisions calculatively keeping the emotions aside but somewhere while trading, you rely on human instincts and are bound to use your emotions more than the use your brain or calculations. But this is not possible with a machine.

Algo trading or Algorithmic trading or also called Automated trading or Black-box trading makes use of technology i.e. computers and software programs to do the trading stuff following a precise set of instructions or algorithms. These algorithms or sets of instructions are based on all the parameters that a normal human uses while trading i.e. timing, price, quantity, etc., or any mathematical model in case of a machine.

Benefits of Algo Trading

The way Algo Trading works gives rise to many pros for traders. There are more chances of placing trade at the right time, less opportunities for human errors, etc.

We can list some of the direct benefits of Algo Trading here:

• Trade Placed in Real time

While it is important in manual trading for the person to be physically present during a good market run to place a trade order in the right moment, it is not important for an algo trader to be present in the moment of a good market run to place the order, the algorithm will get the software to do it in the right moment. As we know the market is highly volatile and there are chances that the moment you are preparing to buy or sell something changes and you are stuck again. This doesn’t happen to an algo trader.

• Trade at Best Possible Price

Since, you are able to place trade in real time with algo trading, you are able to trade at the best possible price. Supposedly, you wanted to sell 50 shares of ABC Ltd. at 2:30 p.m. in profit, you are trading manually, preparing to sell your shares, 2 minutes later the market fluctuates and now your profitable sale suddenly turns unprofitable. Now imagine the same situation but instead of manual trading you are now trading using algo trading software, you have your algorithms set and now instead the software will place trade in the exact moment, the fluctuation happened but it didn’t affect your sale because it was already made in real time.

• Less Probability of Human Errors

Well, Humans do make mistakes and there are chances that manually you may make some mistake while placing orders. Now, this won’t happen while trading for some 100 shares or so. Errors happen when you are trading in huge volume. And trading manually can cost you some big amount if errors happen that are mostly bound to happen. But with a software there are least probabilities of errors. Whether it is a small amount or huge, software makes no or rare mistakes in doing its work.

• Trade Orders are Accurately Placed

If the chances of human errors are rare and a pre-programmed software is functioning properly then all your trade orders are bound to be placed as precisely as it can be with computer computing stuff. It never goes wrong.

• No Psychological or Emotional Decision Making

Machines don’t have emotions, they do not possess any psychology of their own, they are not greedy and it only knows how to obey what is ordered i.e. follow whatever algorithms are feded to it. Humans work on emotions, every decision of ours is based on some emotions and trading is not aloof to it, no matter how much we try. Trading is all about numbers, calculations and timings. And trading with just plain calculations can bring you more profits than traditional trading methods.

• Automatic Market Inspection

All our trading decisions are based on how a particular share is performing in the market and then placing our bets on it. But for manual traders to trade he has to keep an eye on the market and news almost every minute to take the decision. But if you are an algo trader, you don’t need to spend your time on keeping an eye on what's happening in the market. You can be sleeping, eating and your algorithms will assess the market conditions.

• Large Trade in Limited Time

With the help of Algo Trading, you can trade in large volume, which you otherwise won’t have done. As there are less chances of error, ability to trade in real time and automatic market inspection abilities one can trade in huge amounts in a limited time period which otherwise is extremely difficult with manual trading.

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And if you are interested in Algo Trading and want to know more about it, then check our website Smart Algo and Smart Algo’s Blog Posts.