4 Myths and Facts about Algo Trading that needs to be Cleared
Who hasn’t been a victim of Fake News and Rumors? With the advent of Internet & Social Media and all the amazing things that came with it, came rumors. No one I repeat not even one industry has been spared by the virus that is rumor mill. These rumors bring with themselves endless myths built around an industry that are not even true in real life. These rumor mills then convert into myths and become reality for a large no. of population. Algo Trading being one of the emerging industries, growing at a rapid rate has also not been spared by the myth factory.
So, today we are going to bust some myths about the Algo Trading that needs to be cleared. Let’s begin with :-
Myth no. 1 — Algo Trading and High Frequency Trading are same
Most of the people on the internet think Algorithmic trading and High Frequency Trading is the same thing because of the obvious thing that groups them together “Algorithms”. But both terms are different. Algo Trading as Wikipedia defines it is “a method of executing orders using automated pre-programmed trading instructions accounting for variables such as time, price, and volume.” While High Frequency Trading as Wikipedia says it is “a type of algorithmic financial trading characterized by high speeds, high turnover rates, and high order-to-trade ratios that leverages high-frequency financial data and electronic trading tools.”
Myth no. 2 — Algo Trading is Technically Challenging
I know it is quite obvious to think that way because it’s logical to imagine a machine trading on your behalf and taking more efficient decisions than you must be difficult to understand and I am not saying Algo Trading is not technical or does not require coding and stuff but you can be a successful Algo Trader without knowing all the technical stuffs, you do not need to code your algorithms but just select one from the numerous platforms available around (ours being one of them) and they will provide you the algorithms as per your preferences with technical assistance on “How To” questions. Am sure, this must have solved your doubt and hesitation.
Myth no. 3 — Algo Trading is not for Individual Traders
Well, mistaken again! Individual traders cannot do HFT i.e. High Frequency Trading and HFT is not Algo Trading. Algo Trading is done and can be done by individual traders across the globe. It does require initial investment in the technology and infrastructure but not at as big scale as HFT or Quant Trading. But that seriously doesn’t mean you as an individual trader cannot do Algo Trading. Having a perfect knowledge of coding (if you want to develop your own algorithms) or choosing the right Algorithmic Trading Platform (in case you are not much equipped with technical knowhow) is the first step and getting the almost perfect algorithm is next to get started with.
Myth no. 4 — Algo Trading does not has a future
Even though we have written about The Future of AlgoTrading, I am going to repeat some simple points -
- It has taken over more than 60% of the global trade volume.
- Many new and exciting updates in algorithmic trading are yet to come
- Industry reports and several estimates suggest that at the global level, share of algo trade in the markets is going to grow from $11.1 billion in 2019 to $18.8 billion by 2024.
- Not believing in the possible future of algo trading will leave you behind in the past
Myth no. 5 — Bonus Point — Once Your Algorithm is Set You’re Done
While we assure you of the fact that you don’t need to worry about the automated aspect of Algo and the algorithm will do your work and you can earn while sleeping, travelling, and eating but there lies no harm in performing a weekly or monthly check of if your algorithms and codes are performing as per instructions. So that you can solve the issues whenever there is; that will be rare but still better safe than sorry.
So, Now that you have busted all your Myths about Algorithmic Trading, we wish and hope that you will give it a thought and explore it’s depth a little more to uncover a new space for yourself.
Thank You for keeping up with me till now. Hope it was helpful to you.
If you find it informative, do share it with others.
Originally published at https://smartalgo-algotrading.blogspot.com on March 9, 2021.
