The stock market is the most volatile investment portfolio so much so that every investor should think twice before entering. With that said, it is also the most lucrative way to increase one’s investment as one can earn triple their invested capital minus any administrative fee and other fees. Mastering the stock market however would require patience as well as understanding how the market works. With many of us interested in the stock market but not inclined to quitting our daily jobs, online investing is one viable option to consider. Algorithmic trading is a popular strategy that many online investment companies make use of to make trading decisions.
Algorithmic trading involves the use of computer software that utilizes algorithmic programmes to identify potential purchases. Many online investment companies make use of algorithmic trading software and strategies to do trading. Basic arbitrage is just one of the strategies that make use of data such as interest rates to check for any market inefficiency. Another strategy is the use of transaction cost reduction, benchmarking, gaming and icebergs.
High Frequency Trading
One of the popular algorithmic trading methods is the high-frequency trading or HFT that is employed by many popular trading companies. The platform makes use of computer algorithms to move in and out of positions in the stock market in just few seconds thus earning high returns of the companies that employ it. The HFT makes use of several arbitrage including market making, ticker taper trading, events, statistical, news-based and low latency.
Benefits of Algorithmic Trading
One of the benefits of algorithmic trading is that it saves time and provides convenience for the trader. As the financial market is bombarded with millions of information, processing all the information would require time which prevents one from making any decisions and losing opportunities. With the platform, the computer software uses several algorithmic processes that eliminate and filter out unnecessary information and focus on the important ones. As this takes a few seconds or minutes to process, traders can easily identify and spot opportunities and make better trading decisions.
Another benefit is that the emotional impact is eliminated in the process. As human emotions play havoc with a trader’s decisions, fear of loss of capital or greed can directly impact the outcome of the trading decision. With the use of the trading platform, decisions are made from factual basis and allow the traders to reap profits instead of losses. It also provides traders with an edge against other traders especially those who rely on old market strategies.