Algorithmic trading: advantages and disadvantages.
High Frequency Trading, HFT is the primary form of algorithmic trading in the financial markets. This method uses advanced mathematical models to quickly trade securities, arbitrage, futures, binary options, currency pairs. High-frequency trading or algorithmic trading robots use special trading strategies in which computers buy and sell assets in less than a second.
One of the high-frequency trading technologies or incentives for the development of trading robots was the development of a proactive launch strategy, in which various delays in the transfer of orders for transferring transactions give an advantage to those who previously had access to information. For example, this advantage is provided by using communication channels with lower latency.
Algorithmic traders have a clear understanding of price movement and market structure, otherwise their algorithms would simply not work. The mathematical approach to the technical analysis of the market provides significant advantages, and therefore higher profits.Benefits of algorithmic robots:
No psychological problem.
In fact, it still exists because a commercial broker is also a human being. The fact is that when using a trading robot, a psychological thing ceases to play a decisive role in trading and fades into the background. Bots do not panic or overestimate themselves, unlike live traders.Market research by technical means
An algorithmic trader does not need to spend his / her money on market research or a decade to learn how to trade by looking at charts before he / she starts making decent profits. Marketing research in the case of algorithmic trading involves the use of special programs that quickly, efficiently and reliably do all the work for the trader.
Order execution speed at Algorithmic trading
One of the indisputable advantages of using an algorithmic trading robot is the speed of order execution and response to incoming analysis. A trading robot can monitor dozens of quotes in real time, evaluate historical data and instantly perform complex calculations to decide whether to open a position or close it, and place bets immediately.
Accuracy of order execution
The next positive point in using forex trading robots is the accuracy in the trading system. An algorithmic trading robot (soft advisor) does not allow errors (unless, of course, an error crept into the program code when it was written), if necessary, all input and output data can be calculated with an accuracy of several decimal places. When submitting orders, the robot will not randomly receive an extra zero and will not put a comma in the wrong place.
Disadvantages of algorithmic robots:
Algorithmic trading algorithm complexity
Development and creation of a trading algorithm is a very complex process that requires both time and money. The trading robot will accurately execute all orders according to the specified algorithm. Sounds like a pro, but this fact can turn into a minus. If there is an error or inaccuracy in the algorithm, or the system fails, the algorithmic robot will still open and close positions in accordance with the specified program, even if they lead to a write-off of the deposit. Therefore, the accuracy of the algorithm is very important.
As mentioned earlier, the psychological factor in algorithmic trading fades into the background, but is still present. So, very often algorithmic traders, especially beginners, begin to interfere with the trading process of their advisors. This raises the question of trust: do you believe in your robot or not. If you really trust your development, you can apply it to a real account and in no way interfere with its work until it becomes clear that a mistake was made in the development of the algorithm.
Algorithmic trading is booming now; the number of transactions opened by trading robots is growing steadily from year to year. This creates high competition among algorithmic traders and forces them to use more complex algorithms. This trend is quite obvious when you look at the stock markets. The Barclay Systematic Trader Index is the systemic trader's profitability index.