Algo trading, which refers to algorithmic trading, is a form of trading where a computer algorithm is used in order to automate the trading process in any given market. Algo trading has become the most dominant form of trading in most markets including the crypto market and even the foreign exchange market or forex. In fact, it is estimated that around 80% of all the trading that is done in the forex market is done so with the help of algorithmic or automatic trading.
Let’s take a peek behind the curtain and see the truth behind algo trading by examining its most prominent advantages and also disadvantages.
As far as advantages are concerned, we can refer to the following as the most prominent:
Higher speed and increased efficiency
This is perhaps the biggest advantage of using an automatic approach, which is the fact that you get a much higher speed of trade execution with a much more increased efficiency of doing so compared with a human trader. Every aspect of trading including and up to the trade execution itself is processed almost instantly, depending on the performance of the tool.
No negative human factors are involved
When using an automatic approach to trading, all the negative aspects of human trading are eliminated. These include the negative impact of human emotions. As well as the errors in judgment that are made by humans, again due to various human factors such as fatigue or lack of knowledge and expertise.
Dependable consistency
One of the biggest challenges that manual traders are faced with is the consistency in their trading process. It is difficult for a human trader to keep a disciplined approach to trading with sustainable results. Whereas in algo trading we are dealing with an algorithm or tool that not only never sleeps, but also never gets tired either. In this way, the same level of performance can be expected from it around the clock.