People believe that the stock market requires insights, timing, and genius-level that only humans can have. But could it be true? Is algorithmic trading a gimmick? Well, no. It’s quite the opposite.
Many such instances happen where a human trader is unable to handle the huge number of trading. You need help from an intelligent algorithm. Thus, algorithmic trading software comes into the picture.
Large institutional firms and hedge funds mostly use this software, but it has become more popular to the savvy retail trader with the advance and availability in technology.
An Insight Looks At Algorithmic Trading Software
Algorithmic trading software is an algorithm intended to follow specific rules set by the trader who developed it. The trader can make it fully automated and execute trades based on a strategy called black-box trading or find the trade ideas and then notify the trader who would then place the trade.
Benefits of Using Algorithmic Trading Software
There are so many good reasons for a day trader to use automated trading. The pros of algorithmic software are listed below:
Cover More With Less Time
Active traders are known to spend more hours monitoring positions and market insights. During this time, they use their knowledge and skills to implement different strategies, which can be time-consuming as they have to watch so many strategies continually. With an ATS, you can quickly build as many strategies as you want, and it will do the work for you. You just need to monitor the algorithm to make sure they are behaving as required.
Ability to Backtest
You can easily backtest your strategies with algorithmic trading software to get invaluable insights into whether your strategy has been successful in the past. If it doesn’t work, then you’ll surely need to work out the kinks.
Minimization of Human Emotions
If you’ve spent a long time trading, you know that it will involve emotions such as fear, greed, and regret. All of these emotions can affect your decision-making process and ultimately hurt your results. With algorithmic trading software, the strategies are pre-formulated, and there is no chance for the trader to get affected by human emotions. When the pre-required objectives are met, the trade gets executed automatically, and the trader does not get the time of rethinking and questioning the trade. It also keeps both under-trading and over-trading in control.
It is essential to understand that trading is a risky investment, and as a result, losses should be expected. No trading plan assures you of 100% wins, but if you’re a tried and proven trading system, then you will know that you will come out ahead after going through slumps, and that’s where automated or algorithmic trading software really shines.
With an ATS, you can focus on consistently executing your strategy as planned regardless of winning or losing trades.
Algorithms are composed in advance so that you can execute the guidelines consequently. It has the capabilities to analyze a variety of parameters and technical indicators in seconds and execute the trade immediately. The increased speed becomes essential as the traders’ price movements can be captured as soon as they occur.
Another significant benefit of using algorithmic trading software is accuracy. You can diminish errors that may occur when you perform the same action manually. Thus, encouraging you to expel any mistakes before trading in the live market.
Algo trading helps in executing large volumes of trades in a short period. Thus, multiple trades are processed at the same time, and transactional costs decrease.
Utilization of algorithmic trading software means access to multiple accounts and strategies at a single movement. This would be impossible for single trading to manage, and that’s why large firms utilize trading software since they can do so much at one time. The trading opportunities can be scanned over various markets, assets, instruments, and orders are executed simultaneously.
So, if we take a closer look at the overall benefits of algo trading systems, they can be summed up as below:
- Quick and exact trade order situation
- It makes the market more liquid.
- Lower transaction costs because of the absence of human emotions
- A decreased threat of manual mistakes in setting trades
As a day trader or investor, it is vital to invest in building or buying algorithmic trading software to attack the market; however you have to approach it with care and understand what you’re getting into. Algo trading helps in reducing the subjective parts of trading and ensures the decisions are made objectively and as required.