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What is algorithmic trading and how does it work?

 

Algorithmic trading uses computers programs to buy and sell shares automatically based on pre-set rules or algorithms. It follows set rules called algorithmic trading strategies. These algorithms can be designed to follow certain market conditions like price changes, trends, or volume, and can execute trades much faster than humans.

 

Algorithmic trading is especially useful in high-frequency trading situations, where thousands of trades are executed in just a few seconds. Algorithmic trading removes emotional decision-making, allowing for more consistent and disciplined strategies.

 

Having said that, it is important to understand risks such as technical glitches or market volatility, which can lead to significant losses.

 

Also read: Top 5 Benefits of Using Automated Trading Tools in the Stock Market