What is Algo Trading and How it works

Algorithmic Trading, better known as Algo Trading, is a trading method in the stock market carried out by algorithm-based software, which is inbuilt AI technology with pre-defined processes to calculate the trading and predict the future prices. In addition, Algo Trading software eliminates the chances of human error as it is built by machine learning to have a 99% error-free formula.

The algorithmic method is widely used in FinTech industries, mutual funds, and many other financial investments sites to predict future rates and study market behavior. However, Algo Trading is more beneficial for those who trade in high volumes and constantly stream the stock market data in real-time.

There are three fundamental ways to ensure the trader is reaping the benefits of the Algo Trading stock broker app:

• Trend Algorithm: Trend algorithm refers to strategies based on the volume, price, and behavior of the stock. The trend algorithm uses the practice of buying the stock when it reaches the lowest point and notify the sell signal when the price comes to a desirable price.

  It is almost impossible for a trader to keep watch the multiple stocks and investments and act at the right time to buy or sell. Thus, the trend algorithm-based stock broker app uses numerous strategies to ensure constantly analyzing the market structure and keep the trader informed on a real-time basis.

• Stop Loss Algorithm: It is always being said that investing in the market is subject to risk. With hundreds of stock and investment options in the market, managing a huge portfolio and balancing profile and loss is difficult. Therefore, with the stop-loss algorithm, the trader can manage the portfolio by stoping the losses.

  For example, if the stock price is INR 5000 and the trader's stop-loss option is 4998. Then, as the stock price rises to 5005, the stop loss automatically changes to 5003. Thus, the method keep move further, and the predefined stop loss algorithm automatically manages the risk.

• Size of the Stock Algorithm: The primary difference between a regular and a good trader is managing the portfolio under heavy market fluctuation situations. The Algo Trading makes everything easy as the predefined commands act the machine learning has been set. With the size of the stock algorithm, the trader can prefix the value of the stock he wants to buy.

  For instance, if the trader prefixes the value INR 50,000 for some stocks, the system app will automatically purchase the stocks as per the command set. If stock A price is INR 100, the system will buy 500 shares. If the stock A price rises to INR 500, the system will buy 100 shares.

  The trader can set different amounts for different stocks and manage them equally without worrying about wrong calculations.

Algo Trading practices a particular set of mathematical instructions installed in the software. Once the market rate matches the instructions, the Algo Trading software instructs the trader to buy or sell the stocks. Thus, saving a lot of time from scanning the market individually.

• Reduced the trading errors caused by humans as machines are systematic, and their behavior can be modeled, unlike humans; thus, it makes the trading predictable.
• The order placement of the trade is accurate and more chances of execution at a higher value.
• Minimal transaction cost and quick result.
• The Algo Trading software helps to stop losses on the trader's behalf by applying stop-limit notification. The market is unpredictable, and it is almost impossible to manage a vast portfolio, look after each stock at one go and stop losses.
• Algo Trading helps the trader maximize exposure to numerous other opportunities and investments in the market to maximize their profit.

• High volume traders: the traders who trade in heavy volume of stocks every day, such as buying 100–200 stocks of multiple companies and trade-in currencies.
• Mid-term or long-term investors: individuals who are investing more in mutual funds, pension funds, insurance, and other financial products.
• Short-term traders: the traders who are into short-term profit, buying stocks when the prices are low and selling them when the market is up.