- by Arya Sharma
- 21st Dec 2020
5 Advantages of using Algo Trading for Buying & Selling of Stocks
Algo Trading is a totally new way for stock investments. The method has gained huge popularity among traders and investors. Algo Trading consists of its own set of pre-defined rules in which the orders are executed by the software. Sectors like investment banks, pension funds, mutual funds, and hedge funds are also implementing algo. The article lists the top 5 advantages of Algo Trading.
1. Market Trend Identification
With the help of Algo Trading, we can easily identify the market trends which is usually a difficult task . Algo Trading takes into account some of the important criteria like price, volume, support, resistance, or any other concept which the investors hold their confidence.
2. Delta Neutral Technique
Delta basically means the change in the price of the derivative with respect to a change in the price of the underlying asset. Delta neutral is when market movements have no effect on the portfolio. With the help of algorithms, it is quite easy to manage the delta of your position as the result is automated by the system, and updates about the current portfolio are received every second.
Scalping is a method in which traders buy and sell a particular share or commodity at a fixed interval. Scalping has two types- forward scalping (market advances) and reverses scalping ( market declines).
4. Loss Prevention
Markets are unpredictable and therefore, it is quite difficult to manage large portfolios. Algorithms provide you with the best solutions to manage risk. Systems can be fitted with strategies that prevent losses on the movement of the stocks in the portfolio.
5. Position Sizing
The quality that differentiates a good investor from a bad one is how good he is in managing his position under different circumstances. Algorithmic trading makes it easy as there is no human emotions interference and position sizing will be based totally on commands predefined in the system.