Basic Concepts Of Algorithmic Trading

Basic Concepts Of Algorithmic Trading

The process of using a computer program or the set of instructions(an algorithm) is called algorithmic trading. It is also called black box trading, automated trading and also trading. It places the trade in a speed and a frequency to generate more profit which is impossible for the human trader. Here the algorithm is based on the time, price, quantity or mathematical model. In this trading market made more liquid and more systematic where it overrules the emotions of human in trading activities.

Benefits of algorithmic trading                               

1) Best prices are offered by the trading

2) Order placement for the trade will be instant and accurate

3) Transaction cost is less

4) For multiple market trading, an automated check is available

5) No risk of manual error

Algorithmic trading strategies   

Common trading strategies used in algo trading for improved earnings and cost reduction is as follows. And read more about QProfit System which is found to be the best one readily available to sign up algorithmic trading.

1) Trend following strategies

It is the most common, easy and simple strategies of algorithmic trading in channel breakouts, trends in moving averages and technical indicators. There is no prediction of price in this strategy. Based on the desirable trend occurrence trades are carried out which is found to be easy and straightforward. The algorithm is not involved in any complex predictive analysis.

2)Arbitrage opportunities    

In one market stock will be bought at a lower price and simultaneously in another market the stock will be sold at a higher price, gives the price differentials at free from risk profit. Replication of this process for stocks vs future instruments from time to time. To identify this price difference the algorithm is implemented and places the order for profit in an efficient manner.

3) Index fund rebalancing

They have the defined periods of rebalancing to respective indices. It provides the opportunities for the traders to expect 20 to 80 basis points profits which depends upon the number of stocks.

4)Trading range      

Also called mean reversion strategy, in which assets high and low prices are the temporary phenomenon revert to the average value.

5) The volume weighted average price

This strategy uses the stock specific profiles to break up a large order to a smaller one into the market.

Conclusion

To make the money effortlessly you can go for the automation by the computers. Make sure that the system is tested and have required limits of sets and by careful use, algorithmic trading creates more profit.