Algorithmic Trading Advantages

Algorithmic trading systems provide a number of advantages over traditional methods, including:

1. Increased capacity: Computerized algorithms have much more powerful computational capabilities to handle computationally intensive processes.

2. Decreased costs: Commissions for electronic trading tend to be significantly lower than other types of trades.

3. Real-time feedback and control: Algorithmic trading provides better feedback mechanisms than traditional trading methods. The ability of the algorithmic models to process new information is found to be superior to that of the human trader.

4. Anonymity: Algorithmic trading provides privacy and anonymity by allowing the order originator to remain unknown. Also, since orders can go through several brokers, the original time of the order can remain confidential .

5. Control of information leakage: Algorithmic trading protects traders by preventing them from disseminating their alpha expectations to other market participants.

6. Access to multiple trading markets: Algorithms decide instantaneously where to send the orders depending on the best available market. Thus, orders can be placed on the best available market crossing networks and internal flow.

7. Consistent execution methodology: Consistent execution was one of the key factors behind benchmarks such as VWAP. The knowledge of the algorithm enables the trader to understand how and why the algorithmic systems reacted to the market in any given situation.

8. Best execution and transaction-cost-analysis (TCA) real-time: TCA, including execution, impact, slippage, and correlation information, can be available instantaneously. Thus, analyzing all types of pre- and post-trade scenarios can be performed.

9. Minimization of errors: The absence of human operators makes algorithmic trading systems less prone to errors.

10. Compliance monitoring: Compliance rules including limits, exposure, and short sales can be validated in real-time, and alerts can be issued for any potential scenario.

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