In the past years, the algorithmic trading has definitely increased. 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. What you must know is that there are many benefits that you can get from algo trading like reduced costs, speed and accuracy. Due to the reason that such algorithms were written in advance and done manually, then the main benefit is speed. The speed in which such trades are made is measured in only fractions of a second that is a lot faster than what humans are able to 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. Since trades are analyzed and done in a faster way, then you can have more opportunities and they are being offered at better costs.
What you can also get from algo trading is accuracy. If the computer is robotically executing a particular trade, then you could avoid the drawbacks of accidentally putting in the wrong trade which is associated with such human trades. With the manual entries, it is more likely that you would buy the wrong currency pair or that wrong amount unlike the computer algorithm that has been double checked to make sure that a correct order is being entered.
A big benefit of such algo trading is that this is can remove human emotion from the markets and the trades are placed in a 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. Such two emotions which lead to poor decision which algo traders are not susceptible to are greed and fear.
What you can also get from algo trading is that chance to back test. It can be difficult for the traders to know the parts of the trading system work and what doesn’t work because they cannot run their system on previous data. With algo-trading, you can surely run the algorithms based on past data to be able to see if such worked in the past. Such type of ability would surely give you that big advantage since this permits the user to avoid the flaws of such trading system before running this live.
A great benefit that you can get from automated trading is such reduced transaction costs.