What Tomorrow Holds for Algorithmic Trading
Since the last decade, this system of trading has been gaining popularity in leaps and bounds. In the US alone, it accounts for about 70 percent of the overall trade volume. In places like India, it accounts for about 40 percent of the total trade volume. So, whether anyone likes it or not, algorithmic trading has carved a niche for itself in the digital technology hemisphere.
Algorithmic trading or algo-trading is a system enabling people to trade in a security-based and pre-programmed set of trading rules which are usually back-tested on historical data. The rules are typically pre-defined based on indicators, charts, and technical analysis.
A typical example of algorithmic trading systems could be a scheduled task to get a given stock if it continues to close in ‘red’ for five days in a row. This is a rule that you have set where the parameters have to be met. You can further configure and automate the rule into an algorithmic system such that an order to ‘buy’ is placed automatically as soon as that condition is met.
Additionally, your profit target, stop loss level, and position sizing can also be set as rules and programmed into an algorithm further enhancing the trading parameters and giving you much more functionality.
What does the Future Hold for Algo Trading?
The financial sector predicts this form of trading will experience a growth rate of 10.3% CARG between 2016 and 2020. However, the trend is shifting from simple algorithmic trading to high-frequency enterprise. The latter is one of its hybrid forms involving the automatic tradeoff of high-volume stocks at high speeds.
In India alone, most traders and hedge fund houses are showing a preference for algorithmic trading because it’s more efficient and removes any loses traceable to resentments and various negative emotions. Nonetheless, algo-trading is the new frontier of the stock exchange with the promise of a practical tradeoff and successful enterprise.
The Impact of Robotic Technology on Algorithmic Trading
This may sound like it’s coming from a sci-fi flick, but Robotic scientists believe that robots will rule the world in the future. It’s interesting to note that better communication between robots can be achieved by merely programming some algorithm into their chips.
Traders and investors now use this technology to optimize the performance of their systems. There can now be real-time information on the execution of bids, along with other vital information to help a trader manage his stocks.
The Impact of Machine Learning
In just a few years, scientists believe that machine learning will lead to the development of an algorithm that can pick trading strategies by themselves. Many funds are presently being invested in machine learning and automation intelligence to develop advanced innovations and interfaces in algorithmic trading that will amaze the world.
The bottom line is that algorithms are already taking center stage in our day to day living – from traffic lights to cars, to social media platforms. So, we can safely predict that algorithmic trading has come to stay. Profitable trading is shifting from being an arduous computational job to become more of a fun and exciting venture.