Algorithmic Trading: Show me the Money
During the past decade, manual trade forex has experienced an explosion in popularity thanks to heightened internet access and advancements in technology. Algorithmic trading, also known as automated trading, has become an increasingly popular investment option amongst retail traders in recent years, as more and more traders realise the many benefits that it presents.
What is Algorithmic Trading & what is Required?
Algorithmic trading involves using a mathematical, automated algorithm that is written in a unique language designed to be compatible with the trading platform. Once the software is ready and has been attached to the trading platform, it automatically begins to execute trades based on the formula it has been programmed with.
An automated trading system allows the trader to program the software using their own trading strategy and rules that can be backtested beforehand once the system goes live on real markets, based on real-time and available historical data.
To successfully implement algorithmic trading you need computer programming knowledge in order to program the required trading strategy. You also need access to historical data in order to perform backtesting before going live.
Benefits of Algorithmic Trading
Algorithmic trading systems were designed to give traders heightened market access without the need to be tied to the trading platform. Once the software is activated, the trader simply leaves the system to simultaneously scan multiple markets for the ideal market conditions. When the right circumstances present themselves, trades are automatically executed.
Such a system is ideal for investors who struggle to find time to access the markets and trade forex manually. In addition, the system has the capacity to scam countless markets at once; this is something that the human trader could simply never achieve.
Another benefit of automated trading is the complete lack of emotion involved. One of the biggest problems with manual trading is that mistakes are often made based on emotional, psychological or even physical factors. With algorithmic trading, issues of this nature can simply never occur as the system is programmed to trade based on its individual parameters and will never veer from its pre-programmed strategy – unless it is manually tweaked or adjusted.
Finally, all trades are executed at the best possible price and are timed correctly and instantly in order to avoid significant price changes. This enables investors to benefit from consistent profits, time and time again.
Factors to Consider
Although automated trading presents endless benefits, it is important to remember that a computerised system cannot take forex news releases and market fundamentals into account, such as a plane crash, a terrorist threat or a natural disaster. In addition, computer systems cannot replace the passion and enthusiasm that many human traders possess, and many investors thrive on the excitement and exhilaration that the market presents, which is ultimately what enables them to trade so well.
That being said, algorithmic trading can also be adopted in combination with manual trading as a way to diversify your trading portfolio and generate more profits. Even in isolation, it presents a reliable way to boost your profits.