{"id":4727,"date":"2021-09-27T17:34:45","date_gmt":"2021-09-27T12:04:45","guid":{"rendered":"https:\/\/www.tickertape.in\/blog\/?p=4727"},"modified":"2022-05-24T18:38:14","modified_gmt":"2022-05-24T13:08:14","slug":"algo-trading","status":"publish","type":"post","link":"https:\/\/www.tickertape.in\/blog\/algo-trading\/","title":{"rendered":"What Is Algo Trading in Stock Market \u2013 Overview, Examples and How To Get Started"},"content":{"rendered":"\n<p>Rapid growth toward automation and digitization has brought about a sea change in the financial markets. The <a href=\"https:\/\/www.tickertape.in\/blog\/volatility\/\">volatility<\/a> of the high-speed <a href=\"https:\/\/www.tickertape.in\/blog\/how-to-invest-in-shares\/?utm_source=blog&amp;utm_medium=article\">stock market<\/a> has augmented the mathematics and strategies of the finest traders. The technology-driven stock markets now call for an emotion-free advanced trading system to grasp every single market change within seconds.&nbsp;<\/p>\n\n\n\n<p>Algorithmic trading or Algo trading, as it is generally referred to, is the newly emergent trading concept that is driven by technologies such as <a href=\"https:\/\/www.tickertape.in\/blog\/how-ai-can-help-make-good-investment-decisions\/\">artificial intelligence<\/a> and machine learning, and seems to be adept at beating the market fluctuations to gain potentially high returns for investment funds.<\/p>\n\n\n\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_66_1 counter-hierarchy ez-toc-counter ez-toc-custom ez-toc-container-direction\">\n<div class=\"ez-toc-title-container\">\n<p class=\"ez-toc-title \" >Table of Contents<\/p>\n<span class=\"ez-toc-title-toggle\"><\/span><\/div>\n<nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/www.tickertape.in\/blog\/algo-trading\/#What-is-Algorithmic-trading\" title=\"What is Algorithmic trading?\">What is Algorithmic trading?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/www.tickertape.in\/blog\/algo-trading\/#Features-of-Algo-trading-system\" title=\"Features of Algo trading system\">Features of Algo trading system<\/a><ul class='ez-toc-list-level-3' ><li class='ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/www.tickertape.in\/blog\/algo-trading\/#Fully-automated-trading-system\" title=\"Fully automated trading system\">Fully automated trading system<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/www.tickertape.in\/blog\/algo-trading\/#Wide-range-of-markets-and-instruments\" title=\"Wide range of markets and instruments\">Wide range of markets and instruments<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/www.tickertape.in\/blog\/algo-trading\/#Less-human-intervention\" title=\"Less human-intervention\">Less human-intervention<\/a><\/li><\/ul><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-6\" href=\"https:\/\/www.tickertape.in\/blog\/algo-trading\/#How-to-create-an-account-for-Algo-trading\" title=\"How to create an account for Algo trading?\">How to create an account for Algo trading?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-7\" href=\"https:\/\/www.tickertape.in\/blog\/algo-trading\/#Eligibility-for-investors-to-avail-of-the-Algo-trading-service\" title=\"Eligibility for investors to avail of the Algo trading service\">Eligibility for investors to avail of the Algo trading service<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-8\" href=\"https:\/\/www.tickertape.in\/blog\/algo-trading\/#How-does-Algo-trading-work\" title=\"How does Algo trading work?\">How does Algo trading work?<\/a><ul class='ez-toc-list-level-3' ><li class='ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-9\" href=\"https:\/\/www.tickertape.in\/blog\/algo-trading\/#Data-filling-and-input-in-the-system\" title=\"Data filling and input in the system\">Data filling and input in the system<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-10\" href=\"https:\/\/www.tickertape.in\/blog\/algo-trading\/#Creation-of-a-code-or-Algorithms\" title=\"Creation of a code or Algorithms\">Creation of a code or Algorithms<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-11\" href=\"https:\/\/www.tickertape.in\/blog\/algo-trading\/#Execution-of-trading-strategy-created-with-Algorithms\" title=\"Execution of trading strategy created with Algorithms\">Execution of trading strategy created with Algorithms<\/a><\/li><\/ul><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-12\" href=\"https:\/\/www.tickertape.in\/blog\/algo-trading\/#Companies-involved-in-Algo-based-trading\" title=\"Companies involved in Algo-based trading\">Companies involved in Algo-based trading<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-13\" href=\"https:\/\/www.tickertape.in\/blog\/algo-trading\/#Advantages-of-Algo-trading\" title=\"Advantages of Algo trading\">Advantages of Algo trading<\/a><ul class='ez-toc-list-level-3' ><li class='ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-14\" href=\"https:\/\/www.tickertape.in\/blog\/algo-trading\/#High-range-of-efficient-software\" title=\"High range of efficient software\">High range of efficient software<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-15\" href=\"https:\/\/www.tickertape.in\/blog\/algo-trading\/#Adoption-of-a-wide-range-of-instruments-and-market\" title=\"Adoption of a wide range of instruments and market\">Adoption of a wide range of instruments and market<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-16\" href=\"https:\/\/www.tickertape.in\/blog\/algo-trading\/#Ensures-better-investment-return-for-high-investments\" title=\"Ensures better investment return for high investments\">Ensures better investment return for high investments<\/a><\/li><\/ul><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-17\" href=\"https:\/\/www.tickertape.in\/blog\/algo-trading\/#Risks-and-limitations-involved-in-Algo-trading\" title=\"Risks and limitations involved in Algo trading\">Risks and limitations involved in Algo trading<\/a><ul class='ez-toc-list-level-3' ><li class='ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-18\" href=\"https:\/\/www.tickertape.in\/blog\/algo-trading\/#Risk-of-faulty-coding\" title=\"Risk of faulty coding\">Risk of faulty coding<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-19\" href=\"https:\/\/www.tickertape.in\/blog\/algo-trading\/#High-volatility\" title=\"High volatility\">High volatility<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-20\" href=\"https:\/\/www.tickertape.in\/blog\/algo-trading\/#Require-a-proper-set-of-instructions\" title=\"Require a proper set of instructions\">Require a proper set of instructions<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-21\" href=\"https:\/\/www.tickertape.in\/blog\/algo-trading\/#Pure-automated-based-system\" title=\"Pure automated based system\">Pure automated based system<\/a><\/li><\/ul><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-22\" href=\"https:\/\/www.tickertape.in\/blog\/algo-trading\/#Conclusion\" title=\"Conclusion\">Conclusion<\/a><\/li><\/ul><\/nav><\/div>\n<h2 class=\"wp-block-heading\" id=\"what\"><span class=\"ez-toc-section\" id=\"What-is-Algorithmic-trading\"><\/span>What is Algorithmic trading?<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Algo trading is an advanced automated <a href=\"https:\/\/www.tickertape.in\/blog\/how-to-invest-in-shares\/\">stock market<\/a> trading system that needs computerized instructions (program or algorithm) instead of human commands to carry out market functions.&nbsp;<\/p>\n\n\n\n<p>In this kind of <a href=\"https:\/\/www.tickertape.in\/blog\/trading-vs-investing\/?utm_source=blog&amp;utm_medium=article\">trading<\/a>, a computerized set of instructions or an Algorithm is designed to trade in the market to buy, hold, or sell the securities at a right time. This is primarily to leverage the system\u2019s speed and error-free calculations against dependence on a human mind. Traders also refer to such automated buy\/sell programs as black-box trading.<\/p>\n\n\n\n<p>Algo trading system proves to be a solution for investors who are extremely risk-averse or do not wish to participate in market fluctuations. Following are some salient features of an Algorithm trading mechanism.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"features\"><span class=\"ez-toc-section\" id=\"Features-of-Algo-trading-system\"><\/span>Features of Algo trading system<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Fully-automated-trading-system\"><\/span>Fully automated trading system<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>Unlike other online training systems, it employs an automated instruction package to place an order. Trading platforms offer a wide range of order packages that enable traders to earn good returns with the most negligible risk.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Wide-range-of-markets-and-instruments\"><\/span>Wide range of markets and instruments<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>Digital Algo trading platforms offer a variety of instruments and markets that a trader can pick and trade-in.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Less-human-intervention\"><\/span>Less human-intervention<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>Traditional trading with brokers requires a manual strategy to buy, hold, or take a position. Also, intra-day trading demands a consistent watch of the market. But with this system and tech software, the entire process of trading can be automated requiring no third-party interventions.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"how\"><span class=\"ez-toc-section\" id=\"How-to-create-an-account-for-Algo-trading\"><\/span>How to create an account for Algo trading?<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>In India, numerous companies are now offering Algorithmic trading software. Desired traders utilize the techno-based trading services from these companies. Like a <a href=\"https:\/\/www.tickertape.in\/blog\/how-to-transfer-shares-from-one-demat-account-to-another-complete-process\/?utm_source=blog&amp;utm_medium=article\">Demat account<\/a>, Algo trading service companies also ask the investors to start their venture through an account.&nbsp;<\/p>\n\n\n\n<p>Algo trading with these brokerage firms can be availed through a simple Demat account. However, some highly specialized professional Algo traders create a separate account for you that follows some simple steps:<\/p>\n\n\n\n<ol><li>Firstly, it demands to fill an email and password to secure the validity.<\/li><li>After setting a strong password and providing required documents, it may demand some additional information regarding occupation, annual income, savings, and investment.<\/li><li>If you satisfy the investment limits the trader allows you to open an account.<\/li><li>Opening an account could also ask for additional details like triaging experience in stocks, F&amp;Os, and other derivatives.<\/li><\/ol>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"eligibility\"><span class=\"ez-toc-section\" id=\"Eligibility-for-investors-to-avail-of-the-Algo-trading-service\"><\/span>Eligibility for investors to avail of the Algo trading service<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Algo trading cannot be used by every investor. Even trading companies prefer to provide personal trading services to high <a href=\"https:\/\/www.tickertape.in\/blog\/net-worth\/\">net worth<\/a> investors and institutional investors.&nbsp;<\/p>\n\n\n\n<p>Algo trading companies set a variety of parameters and fund ranges to onboard investors.&nbsp;Once investors meet the set criteria, the company promises to set up, for each investor a robust and tailor-made investment strategy.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"algo\"><span class=\"ez-toc-section\" id=\"How-does-Algo-trading-work\"><\/span>How does Algo trading work?<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Like the human mind strategizes to place a perfect time and value order, AI-based algorithms claim to provide a better time-value return, free from human bias and errors, in a high-speed frequency market.&nbsp;<\/p>\n\n\n\n<p>Generally, traders use machine learning with artificial intelligence. This starts with specific rules-based programming in the Algo program. The rules help the computer pick up nuances of the current market changes and make quick decisions accordingly.<\/p>\n\n\n\n<p>Traders follow the following mechanism under this type of trading:<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Data-filling-and-input-in-the-system\"><\/span>Data filling and input in the system<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>The first step is to collect data in order value, desired time to place an order, required conditions for positions, and other relevant information.&nbsp;<\/p>\n\n\n\n<p>For example, you want to set a code for an order after 10 days with the condition that you will purchase 100 shares in case the <a href=\"https:\/\/www.tickertape.in\/blog\/stock-market-index\/\">index<\/a> value crosses 50,000 points. In this order, required input would be time for the trade, condition for indices, value of trade, number of shares that is 100 shares (in this case), and other refined rules.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Creation-of-a-code-or-Algorithms\"><\/span>Creation of a code or Algorithms<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>In simple words, an Algorithm is a set of multiple instructions or constraints regarding order conditions. A trader may use a software language like C++, Java, Python, or an artificial neural language based on order requirement, time, value, and frequency.<\/p>\n\n\n\n<p>With a selected language, traders create a code with pre-defined data and rules. With the testing process, rules and conditions can be added or removed to get a robust result.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Execution-of-trading-strategy-created-with-Algorithms\"><\/span>Execution of trading strategy created with Algorithms<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>The final step of the mechanism is the accomplishment of creating an AI-based trading strategy. As per the condition filled, an automated system executes the order with market trends. It does not have a human sentiment trait which in turn facilitates a free implementation of coded strategy at the perfect time.<\/p>\n\n\n\n<p>This automation-motivated trading system ensures a better return performance and henceforth have made it easy for large fund investors and retail participants to trade in complex high-speed markets.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"companies\"><span class=\"ez-toc-section\" id=\"Companies-involved-in-Algo-based-trading\"><\/span>Companies involved in Algo-based trading<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Algo service-providing brokerage houses are brokers and financial firms with advanced technological coding systems and analysts. These systems and brokerages use a set of specific criteria for trading.<\/p>\n\n\n\n<p>Following skills and qualities are primary to offer to trade on behalf of investors:<\/p>\n\n\n\n<ul><li>High-technological and machine learning system.<\/li><li>Human capital with strong quantitative and data science skills.<\/li><li>Fast computing technology with financial constraints.<\/li><li>Sound analysts\u2019 base for making robust strategies.<\/li><\/ul>\n\n\n\n<p>With these essential prerequisites, a trading can brokerage firm can offer tech-driven Algorithmic trading.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"trading\"><span class=\"ez-toc-section\" id=\"Advantages-of-Algo-trading\"><\/span>Advantages of Algo trading<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Trading with technology-based Algo trading can enable you to outperform the market with a highly efficient coded strategy. Due to sentiment-free decision-making, traders can extract the maximum out of a trade deal. Following are the other advantages:<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"High-range-of-efficient-software\"><\/span>High range of efficient software<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>Trading firms use numerous software to complete an entire trade deal. Some valuable softwares are Pro Realtime, Native APIs, and Meta Trader4.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Adoption-of-a-wide-range-of-instruments-and-market\"><\/span>Adoption of a wide range of instruments and market<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>In order to place a perfect order, programs can reach any market instruments within any market like a bond, stock, or derivative market. You can create any trading strategy to earn the best possible return.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Ensures-better-investment-return-for-high-investments\"><\/span>Ensures better investment return for high investments<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>Generally, Algo trading is used by high net worth investors due to the large funds invested in the stock market. It assists with efficiently applied techniques in order to set fine-tuned market orders.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"risks\"><span class=\"ez-toc-section\" id=\"Risks-and-limitations-involved-in-Algo-trading\"><\/span>Risks and limitations involved in Algo trading<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Trading, even with an Algo-based system, includes some risks and issues:<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Risk-of-faulty-coding\"><\/span>Risk of faulty coding<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>Algorithms that are coded by the human mind run the risk of faulty codes. A single discrepancy can potentially destroy an investor\u2019s fund.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"High-volatility\"><\/span>High volatility<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>Markets that are characterized by volatility may not find Algo trading very profitable. In case of a sudden spike or fall, the system can run haywire, reducing returns.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Require-a-proper-set-of-instructions\"><\/span>Require a proper set of instructions<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>To run a proper function, pre-defined conditions are required as input in the system. Single misinformation could result in faulty programs and wrong order placements.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Pure-automated-based-system\"><\/span>Pure automated based system<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>No doubt, a computerized trading system is much more effective than traditional decision-making. However, computer software is not designed to digest sudden rise\/fall or events that impact the markets.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Conclusion\"><\/span>Conclusion<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>The fast-changing stock market has generated a need to have an automated trading system free from human biases and errors. Algo trading is an alternative solution for investors, especially high net individuals as it can help provide larger returns through computerized codes and trading strategies.&nbsp;<\/p>\n\n\n\n<p>But it is to be remembered that such systems come with their own complications and cannot change strategies in a nick of time like humans.&nbsp; But this must not refrain an investor from choosing Algo trading.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Want to know more about algo trading and how to do it? Click here to know the concept of algo trading and find the best strategies that will help you in the stock market!<\/p>\n","protected":false},"author":45,"featured_media":4739,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"inline_featured_image":false,"_lmt_disableupdate":"no","_lmt_disable":"no","footnotes":""},"categories":[9,1760],"tags":[801],"acf":[],"modified_by":"Aradhana Gotur","jetpack_featured_media_url":"https:\/\/www.tickertape.in\/blog\/wp-content\/uploads\/2021\/09\/10.png?wsr","_links":{"self":[{"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/posts\/4727"}],"collection":[{"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/users\/45"}],"replies":[{"embeddable":true,"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/comments?post=4727"}],"version-history":[{"count":5,"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/posts\/4727\/revisions"}],"predecessor-version":[{"id":8702,"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/posts\/4727\/revisions\/8702"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/media\/4739"}],"wp:attachment":[{"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/media?parent=4727"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/categories?post=4727"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/tags?post=4727"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}