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 a lot of those who are saying that algo trading helps in improving such liquidity and also boosts the informativeness of the quotes and prices.
One reason why that algorithmic trading has surely become very popular is due to the benefits that it holds on trading manually. The advantages of algo trading are actually related to speed, accuracy and also minimized costs. Since the algorithms were written in advance and they were executed manually, then the primary advantage is speed. Speed in which the different trades are done is being measured in just fractions of a second which is much faster than what the humans can perceive.
Such algorithm has such benefit of scanning as well as executing on different indicators at a speed and which is far from what human can do. 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.
What you can also get from algo trading is accuracy. When a computer can execute a trade automatically, then you will be able to prevent the pitfalls of putting the wrong trade accidentally which is common in 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.
What is a big benefit to this kind of trading system is that this has the ability to get rid of human emotion from such markets and the trades are actually constrained in that 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 you can also get from algo trading is that chance to back test. It can be hard for such traders to know the parts of the trading system that work and what doesn’t work since they can’t run their system on past data. In algo-trading, you may run the algorithms according to previous data so that you can see if this really worked before. Such ability gives a big advantage since it lets the user remove any flaws of the trading system before running this live.
A great benefit that you can get from automated trading is such reduced transaction costs.