Algorithmic Trading: Why is it necessary?
Just as the forces of demand and supply have a bearing on the economy of a nation, they have a bearing impact on the shares in the market as well. When large institutional investors enter the market and begin to purchase large numbers of shares in a company – the prices of the shares tend to drive up. If the same is done for a large number of companies, the share market can be affected as a whole. And as if on cue, this is where Algorithmic Trading makes its introduction.
Algorithmic Trading system utilizes complex mathematical models to make trading decisions. According to Investopedia, “The strict rules built into the model attempt to determine the optimal time for an order to be placed that will cause the least amount of impact on a stock's price. Large blocks of shares are usually purchased by dividing the large share block into smaller lots and allowing the complex algorithms to decide when the smaller blocks are to be purchased.”
Large institutional investors benefit from the use of Algorithmic Trading due to the large amount of shares they purchase every day. Complex algorithms allow investors to obtain the best possible price without significantly affecting the price of the stock and increasing costs of purchase. The system follows a defined set of instructions for placing a trade in order, to generate profits at a speed and frequency that is impossible for any human trader to replicate. Apart from profit opportunities available for the trader, algo-trading makes markets more liquid and makes trading more systematic by ruling out emotional human impacts on trading activities.
Using the set of instructions defined by the user, the algorithmic system will monitor the share prices and place the buy and sell order based on the parameters set. The Algorithmic system automatically identifies the trading opportunity available and the trader is no longer required to place the buy and sell order manually nor is he required need to keep a watch on the share prices any longer. Algorithmic Trading provides one with the ability to place accurate trade orders instantly; in turn lowering the risk from significant price changes. It reduces the transaction costs too.
Algorithmic Trading System is used by a whole spectrum of traders. Mid to long term investors, not wishing to influence the stock prices by the bulk purchases they make, make use of Algo Trading to purchase shares at the best possible prices. On the other hand, short term traders benefit from the liquidity created by the Algo Trading System.
The Algo Trading System is a useful tool for investors and traders who wish to maximize the returns on their investments. A cautious use and thorough testing of Algo Testing can go a long way in creating profitable trading opportunities for these market participants.
While all this discussion justifies the need for Algo Trading, there are many other aspects about Algo Trading that need to be looked into. This is why the organizers of the 4th edition of the Finbridge Expo have convened the Algo Trading Summit on the sidelines of the event. The summit has been organized on Saturday, 4th February 2017 between 3:00 PM and 6:00 PM. The schedule of summit is as follows:
ALGO TRADING SUMMIT
- Mr. Vivek Gadodia, Co-Founder, Dravyaniti Consulting
- Mr. Makrand Mone, Managing Director, MGT Technologies Pvt. Ltd
- Mr. Yuvraj Thakker, Managing Director, BP Wealth Pvt. Ltd.
- Mr. Raminder Anand, AVP, Mastertrust
- Mr. Rajib Ranjan Borah, Director, Quantinsti Quantitative Learning Pvt. Ltd.
- Mr. Praveen Gupta, CEO, Symphony Fintech Pvt. Ltd.
Those interested can register themselves for the summit at: https://finbridgeexpo.com/want_to_visit.php
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