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What is Algorithmic Trading?

  • Difficulty Level : Easy
  • Last Updated : 29 Dec, 2019

We all know trading in the capital market is quite a risky business. To tame the skill of trading, we need to develop an algorithm that simplifies the risk quantum in the financial market. So, how do we write a step by step set of instructions to solve a market glitch?. Algo trading is an evolving concept which is already in place at the stock market companies. Let’s have a quick look on what is algorithmic trading and what does it do in resolving financial issues.

  • Algorithmic trading is an automated trading strategy.
  • It is a set of rules for the computer to execute the buy and sell stocks in the Financial Market.
  • The trade engine is developed to generate profits at high speed and frequency with at most accuracy.
  • Huge Volume of historical data is processed and compared to produce competitive gains.
  • The factors influencing the trading algorithm are Time, Price, Volume and the Mathematical Model.

How ALGO trading is Useful in the Financial Market?

  • Risk Management is achieved to a greater extent.
  • Human error and emotional activity is completely discarded.
  • A high volume of data is processed at a faster rate which is not possible for the human trader.
  • Achieved at high speed with sharp accuracy.
  • Highly efficient in processing the historical data which is backdated for 10 years.

Which programming languages are used for Algo Trading?

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The performance of the library functions, the complexity of development, testing and resilient, separation of concerns, widely used, maintenance, density of source code, licensing costs and the overall achievement rate are to be considered while choosing a programming language.
A trading engine is a tool that will be updating for every nuance of market changes. The programming language which is capable of adapting to various market changes with a rich scientific library will be suited for the trading platform.
The languages such as C++, C#, Julia, Java, Python, R, and MatLab possess high-performance libraries and packages for essential data structure and algorithmic manipulation. C++ loaded with the Standard Template Library, whereas Python comes with NumPy/SciPy and pandas. Usual mathematical functions can be found in these libraries. It is a rare case to write a new computational model.

Thus Algorithmic trading provides a new system of trading which makes the financial markets, being technologically sound with data manipulation and backtesting. It is so made possible by creating curative program modules to land in enormous economic gain.

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