Algo trading or algorithmic trading is a trading mechanism in which transactions are done using a computer program. It follows a predefined set of instructions to place trades in the stock market.
The advantage of using algo trading, (popularly known as automated trading) is that there is minimum human intervention. The pre-defined set of instructions execute quick trades and take advantage of every profit-making opportunity in the market. These opportunities are almost impossible for a human to spot.
Algo trading is getting very popular over the last few years. Large institutional investors use an algorithmic trading approach to carry out large trade deals. They attempt to make profits by placing bulk orders based on pre-programmed instructions.
Suppose you are a trader and want to use algo trading, then the below example showcases how you may use it;
You can set a program to buy 100 shares of stocks when the 50-day moving average goes above the 100-day moving average.
Sell 100 shares of stocks when the 50-day moving average goes below the 100-day moving average.
By using these simple instructions, you can carry out an algo trade. The computer will monitor the price of stocks and when the price level touches the predefined programmed levels, the computer automatically places the order to buy and sell the shares. As a trader, you are no longer required to sit in front of the computer and monitor the prices continuously. The computer identifies the trading opportunities and executes it before you can even find them.
If you want to learn more about algo trading, you can get in touch with Indira Securities