5 Reasons Why You Should Start Algorithmic Trading

Algorithmic trading is no longer a tool reserved solely for hedge funds and institutional investors. The widespread adoption of cloud-based services, commoditized data, and affordable software has led to algorithmic trading becoming accessible to retail investors. In this article you will learn what algorithmic trading is, why you should consider it as an investment strategy, and how you can get started.

Algorithmic trading is a method of executing a large order (e.g. a buy or sell of a large quantity of stocks) by breaking the order into smaller pieces and executing the pieces simultaneously via a computer program. This method of trading is carried out by computers and algorithms that decide when to buy and sell based on data and risk parameters set by the trader. The advantage of using algorithmic trading is that you can place a large order without moving the market.

There are a number of reasons why you should consider algorithmic trading as part of your investment strategy. Here are five: - Access to all markets: Algorithmic trading allows you to trade in all markets, regardless of volume or liquidity. It also means that you can trade in smaller companies that have fewer buyers and sellers. - No broker fees: With algorithmic trading, you don’t need to pay for a broker, which means that the transaction costs for each trade are significantly lower than when using a broker. - Control over your risk: In manual trading, you are at the mercy of the market. In algorithmic trading, you have complete control over your risk parameters, meaning that you can set your risk as low as you want. - Lower margin: Margin is the amount of cash that you need to put down in order to open a position. The lower your margin requirement, the more money that you keep in your account, which can then be reinvested. - Automation: Algorithmic trading is an automated trading strategy, which means you don’t need to sit in front of your computer all day. You can set up your strategy to execute trades when you are sleeping or away from the computer.

There are two primary ways to get started with algorithmic trading. The first is to write the algorithm yourself, and the second is to use a premade system. If you are not a programmer, then the latter is the best way to get started. Here are a few things to keep in mind when getting started with algorithmic trading. - Determine your investment goal - Before you start to implement an algorithmic trading strategy, you first need to determine your investment goal. What is your time horizon for the strategy? How much risk do you want to take? - Learn the basics - Algorithmic trading is not a get rich quick scheme. It takes time to learn how the entire process works, but once you have things running smoothly, it is a very efficient way of trading. - Start small - Your first few trades should be small. This gives you the opportunity to make mistakes without losing a large amount of money. - Use a paper money account - Paper money accounts are used to test your algorithm before you start trading with real money. You can also use a paper money account to test different strategies to see which one works best for you.

- Volatility: When implementing an algorithmic trading strategy, you will need to keep an eye on volatility. Higher volatility means that prices move a lot, which can make it very difficult to place a trade. - Exchange: Make sure that you are trading on the right exchange. Some exchanges are better for specific asset classes. For example, the NASDAQ exchange is better for tech stocks, and the NYSE is better for more traditional companies. - Volume: The volume of stocks that you want to trade will also impact the speed of your order. If you want to fill a large order, you need to make sure that the exchange has enough liquidity to handle your order. - Position size: How large of a position do you want to take? You can take a position of any size, but the larger the position, the more risk you are taking on.

- You can avoid the next correction: The stock market has a way of correcting every few years, and it always catches investors off guard. Algorithmic trading allows you to minimize your impact by reducing the average holding period of your stocks. - You can take advantage of the next bull run: The next bull run will come eventually. When that happens, you can trade with more confidence since you will have learned the ropes, and you will know what to look out for. - You can diversify your investment portfolio: Investing solely in stocks puts all your eggs in one basket. Algorithmic trading allows you to diversify your portfolio across different asset classes and sectors, which will reduce your overall portfolio risk.

Algorithmic trading is a great way to diversify your investment portfolio and profit from market trends. It is not a get rich quick scheme, but it is a viable investment strategy that can make you money in the long run. In order to start algorithmic trading, you need to learn the basics, choose a strategy, and start small. There is a lot of hype around algorithmic trading, and unfortunately, not all of it is good. While algorithmic trading can be a great investment strategy, it can also be incredibly dangerous if you don’t know what you are doing.