The algorithmic trading has greatly increased in the past years. Such would help to improve the market quality and is it best to encourage this? There are many of those who say that algo trading would help to improve the liquidity as well as it boosts the informativeness of such prices and quotes.
The big reason why such algorithmic trading has really become quite popular is because of the advantages which holds over trading through the manual method. What you must know is that there are many benefits that you can get from algo trading like reduced costs, speed and accuracy. Due to the reason that such algorithms were written in advance and done manually, then the main benefit is speed. Speed in which the different trades are done is being measured in just fractions of a second which is much faster than what the humans can perceive.
Such algorithm has such benefit of scanning as well as executing on different indicators at a speed and which is far from what human can do. Due to the reason that the trades are being analyzed and they are done in a much faster way, then you will surely have more opportunities and they are made available at a lot better costs.
What you can also get from algo trading is accuracy. If the computer is robotically executing a particular trade, then you could avoid the drawbacks of accidentally putting in the wrong trade which is associated with such human trades. With the manual entries, it is more likely that you would buy the wrong currency pair or that wrong amount unlike the computer algorithm that has been double checked to make sure that a correct order is being entered.
What is a big benefit to this kind of trading system is that this has the ability to get rid of human emotion from such markets and the trades are actually constrained in that set of predefined criteria. The reason why such is an advantage is because those humans trading are susceptible to such emotions which may lead to irrational decisions. Such two emotions which lead to poor decision which algo traders are not susceptible to are greed and fear.
What is also great about algo trading is such ability to backtest. It can be difficult for the traders to understand the parts of the trading system which actually work and what doesn’t because they are running the system on past data. Through the algo trading, you may run the algorithms according to the past data in order to see if it would have worked previously. Such type of ability would surely give you that big advantage since this permits the user to avoid the flaws of such trading system before running this live.
One excellent benefit that you can have from automated trading is the reduced transaction cost.