What is Algo Trading?

What is Algo trading? How to do this Algo trading? Market will go up or down in this Algo trading? Every traders and investors are having this doubt in their mind. In April 30 Infosys share fell down drastically during the trade. Everyone believe Algo trading is the reason for this fall. Here in this article we will talk about what is Algo trading and how this trading will affect the index and individual stocks.

Algo trading also known as Algorithmic trading or Robot trading. Based on some algorithm we have to create some formula. Doing trading on the basis of the formula is the Algo trading. Normally our day to day trading activities is involves some algorithm. For example if X share is trading in price of Rs.304. We plan to buy this share when it comes to price level 300 and sell the share when the price reaches 308. The X share traded in the price level of 304 and fall down to our buying price level of Rs.300. We will purchase this share in our expected price. Once this share price reaches our target level, what we will think? We will sell partial quantity and keep hold remaining shares to get higher profits.

Sometimes this result will give good result and some time will give wrong results. In Algo trading there is no place for human desire and sentiments. Because our pre-programmed algorithm will buy and sell the share in our prescribed price. Buy and sell both trading process will executed by computer robots. In earlier days share trading happened between two persons directly. Once the technology develops this trading has been carried out by computers. Internet connected computer is act as medium between two persons for buying and selling the shares.Now we are in next generation of trading system. Once we fix the buying and selling price to the computer software, it will do buying and selling in our given price automatically. This is the Algo trading or Algorithm trading.

Advantages of Algorithm trading or Algo trading.

 We have very good advantage in this Algo trading. First it is not necessary to sit in front of the terminal to do trading and not required to call our broker to make a order to buy and sell. Computer software robots will do buying and selling on behalf of us. Apart from this we can identify small techniques and make an order to the robots. It will do trading as per our settings. For example if we order the robots to sell the shares in their 52week higher price, it will identify that price and sell once that share price reaches the level. Like this we have many benefits in this Algo trading.

There are many separate software to write this Algorithm. Now some of high net worth investors, some domestic institution are using this Algo trading. In coming years there is more chance that all will use this Algorithm trading. So we can conclude that because of Algo trading markets will not raise and fall drastically.