What are the advantages of automated trading?

Automated trading, also referred to as algo trading, utilizes computer algorithms to make trades. Since the computers are much faster, precise and emotionally unbiased, they can really help increase the efficiency of trades. In fact, algo trading strategies have become so popular that almost 40% of all trades conducted on the National Stock Exchange (NSE) are done by using automated trading. Let us take a look at some of the advantages of algo trading that makes this method of conducting trades so popular.

 

Advantages of Algo Trading:

To answer the question of whether or not algo trading is right for you and whether or not you should conduct intraday trading with the help of computers, we need to assess the pros and cons of the method in question. There are undeniably some cons related to algo trading but they are massively over weighed by the pros, which include:

 

Speed

One of the best advantages of automated trading is that since the algorithms are already decided, the trades can conducted automatically and with great speed. Naturally, when the speed of trade execution is high, you’ll be exposed to more opportunities for generating profit. Since computers operate in a speed parameter known as MIPS (Million Instruction Per Second), the difference between the computational capacity of humans and computers is so significant, it would be ludicrous to even compare the two.

 

Accuracy

But we all know that speed means nothing unless accuracy is there. It is after all, the cornerstone of success in so many businesses. For computers, the question of accuracy is a moot one. If the algorithm written is good, then the accuracy of successful trades will also be good and vice versa. Humans, on the other hand are unpredictable; they make an incredibly intelligent trade decision in one moment and be swayed by emotions and external factors to make an absolutely asinine decision in the next moment. This is why algo trading is more predictable and hence, more accurate. In any business, you want to eliminate randomness as much as possible and algo trading strategies help achieve that target.

 

If you want to test the accuracy of your algorithm, you can backtest it. In backtesting, you subject your algorithm to previously available data to see how it’s functioning against it. By studying algorithm’s performance against old data, you can confirm the level of efficiency and accuracy of the algorithm.

 

Free time

By employing a trading algorithm, you can get rid of a lot of stress that comes from having to monitor the stock market day and night. The algorithm will take care of your sales, generate more revenue and reduce losses. As a result, you get time to enjoy your life.