Trading is an age-old tradition that has shaped the global economy. Humans have come across considerable changes in this system. It was challenging to jump from a barter system to cryptocurrency.
Modern trade has undergone a tremendous revolution in its functioning. Trading types have also changed recently. Traders have come up with methods that use technology widely.
Algo trading is one of the newly developed trading methods that use technology. It is a smart way of investing that yields higher than the standard methods. Its success rate is 97% as compared to other methods. We shall discuss this method and its aspects in this write-up.
Algorithmic Trading: Definition and Overview
Algorithmic trading is the process of carrying out trading with the help of automated instructions and pre-programmed setup. It is a method of trading that has taken over traditional methods. Almost 60-75% of the population uses this trading method. Here are its key features for a quick understanding:
- This method helps in leveraging the speed of technology that leads to an excellent output compared to a manual one.
- This method works with both institutional traders and retailers.
- The institutions using this Methodism are investment banks, hedge, pension, and mutual funds.
- The aim of traders is to accelerate the trading speed and the benefits gained from them.
- It has emerged as a smart way of investing that acts as a pool for international trading success.
- These features of algo trading can give a brief overview of this trading method. The scope and advantages of algo trading are expanding.
Algo Trading Apps and Their Benefits
As each algo trader is now using an algo trading app, its scope looks forward to an improvement in the future. Some of the best applications that support algo trading are:
- SpeedBot
- Meta trader
- AlgoNomics
- Odin
- Coinrule
- Pionex
- AlgoTraders
- DX charts
- Robo trader
The Indian market already sees an 80-85% rise in trading using such applications. This thing happens with the help of automated bots who assist the users in their journey. Many people design them using complex coding. However, anybody can build them with the help of a no-code bot builder.
The Benefits of Algo Trading Are:
Low Price and Transaction Costs
The first advantage of algo trading is a reduction in overall costs. Be it the first investment or transaction cost, it is significantly lower than other methods and platforms.
No human errors
The chances of human errors decrease as it is an automated process. This fact also helps increase the accuracy and delivery time of the results.
Mobile Applications
The facility of algo trading is now available in the form of mobile applications. You can now easily do the entire process on your mobile. An algo trading app or Options Trading App can save you from several complications.
Time Management
Although the market is subject to change, algo trading has everything predefined. It helps in keeping up with time management.
The Facility for Backtesting
Could one go back in time and check for the errors? The system of algo trading allows it through its storage of history. You can go back in time and review their record.
Coding Not Mandatory
Are you one from a non-technical background? You need not worry about it; you can choose a no-code bot builder platform to design an application. These are the advantages of algo trading applications. They serve as natural partners in trading as they provide all the benefits mentioned above.
Slippage in Algo Trading: Why, What, and More?
The financial market is highly volatile and has a lot of issues. Slippage is one such issue and captures the attention of traders. It is an issue that compromises the difference in the execution price of a trade and the requested price. It is a sign of a highly volatile market.
Causes of Slippage
Algo trading is a widespread issue in the market of financing. The causes of algo trading are extensive depending on the other reasons. Some of these causes are:
The causes of slippage are a vast domain in itself. It takes a lot to research and accumulate knowledge of such topics. However, current affairs are a great source to be updated with this knowledge.
Use of Delayed Quotes
It would help if you didn't use delayed quotes. They pose the risk of slippage. You can keep an eye on the sources providing quotes. This step would help you in having the information about new quotes. It is a considerable risk for your trading, and it's the return on investment.Trading Amidst High Volatility
You can't bear the risk of investing in an environment of extreme volatility, can you? You cannot do it because high volatility has no standard output. It can be shallow and high.Low Volume of Trading
A low volume of trading is not a good thing. It would help if you had significant importance to investing and getting returns. It is necessary to avoid the risk of slippage and similar conditions.Choosing Wrong Hours
Since many traders are trading, keeping up with time is extremely important. It would be best if you went for trading in the hours which seem the best for it.Involvement of the Third Party
The involvement of a third party in your investment order may be responsible for the deterioration of your return on investment. Having a loyal and trustworthy connection for your deals would be best.The causes of slippage are a vast domain in itself. It takes a lot to research and accumulate knowledge of such topics. However, current affairs are a great source to be updated with this knowledge.
Effects of Slippage
The main effect of slippage is loss. However, it has many more products which are well-known to an investor. Here are a few points that can make it more clear:
Volatility
Volatility is widespread in the market and is an impact and the cause of slippage. It is difficult for investors to escape the chances of volatility in the market.
The effects of slippage are widespread. It takes work to know them all at once. However, asking the experts about their functioning in the market is advisable.
Differences in the Prices
Slippage is the term that describes the difference between expected and output prices. This factor already creates a distinction that may be positive or negative depending on the conditions.Negative Slippage, Less Takeaway
Negative slippage occurs when the actual price for an investor comes out to be lower than expected. It is a clear situation of loss.Positive Slippage, More Takeaways
If an investor is fortunate enough to have a positive slippage, they may benefit considerably. The investor can have a substantial positive return.Volatility
Volatility is widespread in the market and is an impact and the cause of slippage. It is difficult for investors to escape the chances of volatility in the market. The effects of slippage are widespread. It takes work to know them all at once. However, asking the experts about their functioning in the market is advisable.
Mitigation Strategies for Slippage
It is essential to know about the possible steps to mitigate risks that accelerate the chances of slippage. Here are a few tips that you can use for the same:
Leveraging Technology
It would be best if you leveraged technology. It would allow you to avoid the chances of slippage.Avoiding Volatile Markets
Investing in a volatile market would lead to astonishing results. You would either return with huge benefits or huge drops.Boundary Order
You can allow your price to be higher than the current rate of the market. If the conditions support you, you can open a new trade.Stop and Limit Orders
Please specify the price at which you would receive the brokerage. This step would allow you to have control over your orders.Wrapping Up
Trading is an ancient profession. It underwent numerous changes. Algo trading is one of the most famous methods of trading. It uses technology to operate and maximize profits. However, it is subject to many problems like slippage.
