Such algorithmic trading has surely increased in the previous years. Such would help to improve the market quality and is it best to encourage this? There are many of those who say that algo trading would help to improve the liquidity as well as it boosts the informativeness of such prices and quotes.
One reason why that algorithmic trading has surely become very popular is due to the benefits that it holds on trading manually. What you must know is that there are many benefits that you can get from algo trading like reduced costs, speed and accuracy. Because the algorithms were actually written beforehand and they are executed in a manual way, then the main benefit is speed. The speed wherein those trades are made is actually measured in just fractions of a second and this is much faster than what those humans actually perceive.
The algorithm actually has the benefit of scanning and executing on various indicators at a speed which no human has done. Due to the reason that the trades are being analyzed and they are done in a much faster way, then you will surely have more opportunities and they are made available at a lot better costs.
Also, a benefit to such algo trading is accuracy. When the computer is automatically doing a certain trade, then you would be able to avoid such pitfalls of accidentally placing in the wrong trade associated with those human trades. In manual entries, there would be a higher chance of buying such wrong currency pair or that wrong amount unlike the computer algorithm that was double checked to be sure that there is really a correct order that is entered.
One of the largest benefits of algo trading is such ability to remove human emotion from those markets, trades which are constrained in a set of predefined criteria. A reason why this is one advantage is due to the reason that the human trading is prone to emotions that can result to irrational decisions. The two emotions that would lead to a poor decision that algo traders aren’t made susceptible too are fear and greed.
What is also great about algo trading is such ability to backtest. It can be difficult for the traders to understand the parts of the trading system which actually work and what doesn’t because they are running the system on past data. With algo-trading, you can surely run the algorithms based on past data to be able to see if such worked in the past. Such type of ability would surely give you that big advantage since this permits the user to avoid the flaws of such trading system before running this live.
What is a great benefit that you may have from the automate trading is that minimized transaction cost.