Algorithmic trading has existed for more than 30 years and during this time has been showing good results in international trade. The automatic method originated at the end of the last century and made a large-scale revolution in the entire market system. Before the invention of computer programs, trading without people seemed like a fantasy, but today it is a real opportunity to simplify the workflow and increase earnings.
How does algorithmic trading work?
Despite the apparent simplicity, learning algorithmic trading should be approached with all seriousness. If an investor sets up the program incorrectly or buys a non-working robot, he will lose his own deposit. The cost of a mistake is too high, so a beginner should study the topic in advance and determine his priorities when choosing an Expert Advisor.
There are many specialized programs on the web. All of them have unique features and complex functionality. The only thing that unites them is the automation of trading, which is carried out to a greater or lesser extent. When choosing an algorithmic trading robot, you should read the reviews and all the characteristics of the system. If the features of this program do not meet the investor’s goals, he should choose another development.
After buying a robot, you should test it on a demo account or at auctions with minimum amounts. Thus, the depositor will understand how effective this system is and whether it should be trusted to work with a large deposit.
Professionals work on the creation of profitable vehicles, and they can really develop a high-quality program that brings significant profits. At the same time, any development becomes obsolete over time, if the age of the software is more than 3 years, it may be ineffective.
In order to interact productively with automatic systems, you need to be well versed in them. On the Internet, you can find algorithmic trading for beginners, designed for dealers with a minimum amount of knowledge. The investor will gradually master the system and learn how to manage it.
Algorithmic trading has many advantages over manual trading. First of all, it relieves the businessman of most of his tasks and speeds up decision-making. A speculator can set a program to a certain set of actions and go about his business. In addition, the automatic system is able to earn faster, because it instantly calculates price movements and places orders.
Risks of algorithmic trading
There are many opponents to this method of trading. Speculators talk about the following disadvantages of algorithmic trading:
- Technical failures are often the cause of losses. The system is overloaded and cannot withstand a huge number of users. It goes down and freezes, due to which investors lose profit or even suffer losses. The suspension of trading negatively affects the quality of transactions, reducing the final revenue.
- Sharp price swings occur against the backdrop of a huge number of trading orders. The quote is constantly changing, and the chance of individual investors to make a profit decreases. This volatile price behavior contributes to large losses or large-scale gains.
- There is often an outflow of liquidity. Most of the trading operations are performed by robots, which means that when taking profits in the market, the number of orders is sharply reduced. An unstable situation can cause market panic and an instant drop in price.
- To meet the growing demands of algorithmic traders, brokers are forced to increase the cost of maintaining platforms. The complication of algorithms and the build-up of technological equipment may lead to an increase in prices for brokerage support of transactions.
- Pricing transparency is lost, and the complexity of market forecasting is growing. It will be much more difficult for investors to make assumptions about the quote, and the importance of fundamental factors will decrease.
If the investor is not afraid of the associated risks, he can use ready-made trading ideas for algorithmic trading or create his own program.
