Algorithmic Trading for Beginners: Decoding Advantages
Last updated
Last updated
For any newbie, the financial markets can be daunting. With so many financial markets globally, there are innumerable assets, stocks, securities and more to track. When a beginner investor enters the financial world, he/she has to figure out their trading approach. While many beginner investors opt for manual trading, the trend is changing. With the advent of technology, many newbie investors are taking up algorithmic trading or automated trading. In algorithmic trading, an investor inputs his trading strategy into a program, and then the algorithm executes trades. The only thing an investor needs to do is supervise and keep a check on the algorithm. In recent times, the has become advanced. Many new algo trading companies have come up. Among them, uTrade Algos is becoming increasingly popular among investors.
In manual trading, the traders or investors analyse the multiple markets and assets and execute trades accordingly. Considering the amount of time and effort manual trading requires, algorithmic trading seems much more lucrative for a beginner investor.
Let’s have a look at the advantages of algorithmic trading.
For any investor, capturing the right opportunities in the market and trading at the right time is crucial. Even for a beginner investor, this can make or break his/her journey. In algorithmic trading, the computer program swiftly analyses global markets and securities round-the-clock and executes trades according to the coded strategy. Since this happens at a high speed, the chances of missing any opportunity are low. From analysing charts to executing trades, algo trading happens in milliseconds and microseconds.
Since the computer program takes all trading decisions in algorithmic trading, human errors are less. The computer program executes buying and selling decisions based on the coded strategy. Hence, there won’t be scope for any mistakes. For example, if 100 units of stock X are up for sale, the computer program will enter 100 units only. It won’t make the mistake of entering 10,000 units, which can be the case for a human trader.
Algo trading can handle high volumes of transactions. It can execute a vast multitude of buying and selling decisions in milliseconds. Hence, when it comes to it, a beginner investor can scale his algo trading set-up. On the other hand, in manual trading, it may not be possible for human traders to analyse multiple markets and execute millions of transactions.
Automated trading is free from emotional bias. While trading manually, a beginner investor may let his/her emotions come in the way, which might prove detrimental to his/her investment. However, in the automated trading system, the algorithm executes trades based on the computer analysis and input strategy. It is not biased emotionally.
Diversification, in the case of investment, helps minimise and manage risk. For a beginner investor, diversification manually might be tricky. Since human investors can execute only a limited number of trades and analyse only a few markets, diversifying a portfolio might be difficult. However, in algorithmic trading, it is easy. Algorithms can analyse multiple global markets and simultaneously execute trades, all in a matter of microseconds. Hence, diversifying a portfolio is easily possible in the case of automated or algorithmic trading.
Many might argue that the costs involved in algorithmic trading are very high. However, it only happens while initially setting up the automated trading system in India. Once set up, the automated trading system can execute a high volume of transactions in microseconds and lower transaction costs.
In manual trading, until a trader executes his strategy, he/she will not know whether it works. Testing the trading strategy in advance is not possible. However, in the case of algorithmic trading, against historical data before deploying it for live market trading is possible. Backtesting helps a beginner investor gain confidence. Platforms like uTrade Algos allow traders to backtest a strategy before going live.
Having read through the advantages of algorithmic trading, a beginner investor might wonder which platforms offer the best features to start one’s investment journey. While several algo trading platforms have come up in India, there is one that offers unparalleled features. From backtesting to a free trial, brings several unique features that may be handy for a newbie investor.