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Algo-trading is used in many forms of trading and investment activities

Algo-trading is used in many forms of trading and investment activities including:

Mid- to long-term investors or buy-side firms—pension funds, mutual funds, insurance companies—use algo-trading to purchase stocks in large quantities when they do not want to influence stock prices with discrete, large-volume investments.

Short-term traders and sell-side participants—market makers (such as brokerage houses), speculators, and arbitrageurs—benefit from automated trade execution; in addition, algo-trading aids in creating sufficient liquidity for sellers in the market.

Systematic traders—trend followers, hedge funds, or pairs traders (a market-neutral trading strategy that matches a long position with a short position in a pair of highly correlated instruments such as two stocks, exchange-traded funds (ETFs) or currencies)—find it much more efficient to program their trading rules and let the program trade automatically.

Algorithmic trading provides a more systematic approach to active trading than methods based on trader intuition or instinct.

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Benefits of Algorithmic Trading

There are several Benefits of Algorithmic Trading. We prepared a list with the main benefits on this article:

Benefits of Algorithmic Trading
  1. Trades are executed at the best possible prices.
  2. Trade order placement is instant and accurate (there is a high chance of execution at the desired levels).
  3. Trades are timed correctly and instantly to avoid significant price changes.
  4. Reduced transaction costs.
  5. Simultaneous automated checks on multiple market conditions.
  6. Reduced risk of manual errors when placing trades.
  7. Algo-trading can be backtested using available historical and real-time data to see if it is a viable trading strategy.
  8. Reduced the possibility of mistakes by human traders based on emotional and psychological factors.

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