Algo Trading

what is Algo trading?

Algorithmic trading uses a computer program that follows a defined set of instructions (an algorithm) to place a trade. The trade, in theory, can generate profits at a speed and frequency that is impossible for a human trader. Algo-trading renders markets more liquid and trading more systematic by ruling out the impact of human emotions on trading activities.

Most algo-trading today is high-frequency trading (HFT), which attempts to capitalize on placing a large number of orders at rapid speeds across multiple markets and multiple decision parameters based on pre-programmed instructions.

Examples of strategies used in algorithmic trading include market making, inter-market spreading, arbitrage, or pure speculation such as trend following.