The Rise of Algorithmic Trading Exploring The World of Trading Bots.

For most people today, the term algorithmic trading is a novel concept. However, algorithmic trading has been around for many decades now. As soon as man was able to program a computer, algorithmic trading soon followed. Before we dive into how algorithmic trading became the juggernaut it is today, let's first figure out what exactly algorithmic trading is.

WHAT IS ALGORITHMIC TRADING?

Simply put, algorithmic trading is a process of trading using algorithms. It is automated trading whereby trades are executed based on preprogrammed computer instructions. These algorithms are designed to make split-second market decisions based on historical market data. Algorithmic trading also known as algo trading or automated trading, is part and parcel of most financial markets; stocks, currencies, securities, and derivatives. Even crypto algorithmic trading is now quite common. Now, let’s take a trip down memory lane.

THE HISTORY OF ALGORITHMIC TRADING

Different rule-based approaches towards trading have always been around, even in the earlier parts of the 20th century. However, with the proliferation of computers, algo trading became more mainstream.

In the 1970s, algorithms were designed to take trades at the most favorable prices. These algorithms prioritized efficient execution over the identification of trading opportunities.

In the 1980s, more sophisticated algos began to emerge. Trading bots could now accurately analyze market data and execute trades independent of human input.

In the 1980s, more sophisticated algos began to emerge. Trading bots could now accurately analyze market data and execute trades independent of human input.

The 1990s saw the introduction of electronic communication networks (ECN) which made trading accessible to the public at large. One no longer needed a broker to help place trades.

As more market data became more available and computer processing power increased, the 2000s brought about an increased participation of trading robots in taking trades.

These days, with little effort, one can create a trading robot. There's a plethora of tools out there for anyone who dares. Comparing how easy it is today to create a trading bot to how it was in the 1960s, you can tell that algo trading has taken giant strides. You no longer have to be a big-shot trader to have access to automated trading. Anyone with a laptop, an internet connection, and a willingness to learn can reap the benefits of algorithmic trading.

While technology has played a major role in the advancement of automated trading, none of it would have been possible if government policies weren't in support. Thankfully, regulatory bodies in various countries understood that algo trading wasn't just another bubble and jumped on board.

POTENTIAL RISKS OF ALGO TRADING

As far as algo trading is concerned, it's not all sunshine and rainbows. There are some risks associated with algorithmic trading. It's best to be in the know so you can avoid such pitfalls.

Despite being clinical and efficient, if given enough time and stress, machines do fail. The same applies to algorithms. What happens when your trading bot malfunctions? You lose money.

The 'flash crash' of 2010 was in no small way attributed to high-frequency trading (HFT) with the use of algorithms. This is to say that algo trading high volumes can potentially lead to market instability.

Now, how does one mitigate all these risks? By applying sound risk management and establishing robust checks and balances. This way, when anything goes wrong, if they do, losses will be minimal.

IN CONCLUSION

Indeed, algorithmic trading has come to stay. As technology becomes more advanced and accessible, trading bots are going to become more powerful and sophisticated. Virtually anyone can be a part of it, be it in traditional markets or crypto markets. These days all you need do is go on a crypto trading bot marketplace and purchase a bot that suits your needs and you are good to go.