What is Algorithmic Trading?
In the financial markets, there are nearly as many trading strategies as there are investors and traders. The markets are increasingly accessible electronically, opening up even more possibilities for the development of trading systems. One of these is algorithmic trading, a trading system that uses advanced mathematical models called algorithms for making decisions and transactions in the financial markets. A computer, programmed with an algorithm, will enter electronic trading orders when certain technical conditions are met. These conditions can include timing, price, the quantity of the order, and general market trends, among other factors. Algorithmic trading is most widely used by large institutional investors such as hedge funds, mutual funds, and pension funds. This is the case because the advantages it presents are most relevant to large funds. When a fund buys a large quantity of a given stock, for example, this can have the effect of raising the price of the stock enough to
Algorithmic trading is the implementation of some form of statistical or quantitative analysis for making transaction decisions in the financial markets. The key principles behind this analysis involve identifying patterns within historical data to predict future market behavior or looking for arbitrage opportunities within various markets. Algorithmic trading is typically broken down into either profit seeking (signal generation) or execution management based implementations.
Posted on August 8th, 2006 shirish No comments Algorithmic trading is a trading style that allows firms to electronically determine the execution time and route orders to different electronic exchanges, therefore, providing a tool for faster, cheaper, and electronic execution of orders. Algorithmic programs analyze orders with ticker data to determine when to execute. Besides electronically executing orders, those programs also determine eligibility of the orders for electronic execution in a particular exchange. Algorithmic programs use different methodologies to determine when a order can have the best execution. The process involves use of software and mathematical models. There are many different Algorithmic program models. Some of the well known models are: VWAP (Volume Weighted Average Price) TWAP (Trade Weighted Average Price) Volume Currently sell side companies are providing such models to route and determine execution time of an order that allows buy side companies more contr
