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How algorithms are going to change the way you buy and sell stocks

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Evolving at a rapid pace, technology is quickly changing the way we trade in the stock market. Especially in the trying times of the Covid-19 pandemic, technology has thrown open many opportunities, including a new upcoming generation of traders who are considering trading as a full-time career. One such technology that has revamped stock market trading is algorithmic trading, which has accommodated traders with a competitive edge to better their skills and stands poised to outstrip traditional trading methods in the future.

Algorithmic trading was introduced and allowed in India in 2008 by the Securities and Exchange Board of India (Sebi) and recently you all have checked many algo trading app in India that is being famous and comes in regular work. Initially, it started with Direct Market Access (DMA) and was restricted to institutional investors only, but due to the cost advantage and better execution, the trading community welcomed it with open arms. Exchanges have also played an important role in its adoption by offering co-location server ‘racks’ on lease to broking firms in June 2010, to improve trading speed and align with the international market.

Decoding Algorithmic Trading

Algorithmic trading refers to the use of programs and computers to generate and execute (large) orders in markets with electronic access. It generates speed and frequency that is impossible for a manual trader to achieve. Algorithmic trading strategies involve making trading decisions on the basis of pre-set rules that are programmed into a computer. A trader or investor writes code that executes trades on behalf of the trader or investor when specified conditions are met.

The pre-set rules are generally based on timing, price, quantity, or any mathematical model. Apart from profit opportunities for the trader, algo trading app renders markets more liquid and trading more systematic by ruling out the impact of human emotions and errors on trading activities. Since algorithms are written beforehand and are executed automatically, the main advantage is speed. Besides, it promotes features such as automation, eliminates human intervention and emotions, minimizes slippages, allows flexibility and promotes ease of use, provides extensive data mining and explorations, and safeguards and warning systems against most common human errors.

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