The computer programs noshed with algorithms to envisage the financial market and thus conduct trades on behalf of traders where algorithm manages the quantity and order type, as well as the entry and exit price with minimum human intervention, is known as an algorithmic trading program.
The algorithmic analysis involves monitoring the market by studying variables such as price, timing, and quantity. Currently, it is one of the most widely used for Forex trading strategies. This investment technique is also known as black-box trading, algo-trading or automated trading.
Approximately, 40% of the trades in the financial market are made using this investment strategy. Furthermore, this system usually accomplishes short-term trades. Thus, it does not hold a trade for long and sells a stock or security even if there is a small opportunity or opening.
Basically, the system is for online Forex trading where it sells a stock or security before the conditions take a turn for the worse. As a result, the profit margin on a single trade is not very large. However, if compared on a large scale, it allows investors to earn more than they would otherwise be able to do.
This method is called high-frequency trading and is a specialized class of algorithmic trading. This kind of algorithmic trading strategy is typically used by large investors – institutional investors. This includes hedge funds, pension funds, and mutual funds.
You may navigate this site to get more details about the algo trading. The reason is they purchase a large amount of shares every day. A large quantity of stocks or shares is divided into smaller blocks and purchased individually. The complex algorithms determine an opportune time to buy these smaller lots.
They place an order in such a manner that the purchase has the least impact on the price of the stock and without increasing the purchasing price. Thus, it reduces market impact and increases profit margins for large investors.