What is Algorithmic Trading: How Machines Execute Orders
Algorithmic trading uses pre-coded rules to execute buy and sell orders automatically, removing emotional bias. From HFT to systematic strategies, both institutions and retail traders use it — but risks are real.
TL;DR
Algorithmic trading uses pre-coded rules to execute buy and sell orders automatically, removing emotional bias. From HFT to systematic strategies, both institutions and retail traders use it — but risks are real.
Definition and Core Mechanics
Algorithmic trading (algo trading) uses computer programs to automatically execute trades based on predefined conditions — price levels, volume thresholds, technical indicators (e.g., moving average crossovers), news sentiment, or statistical arbitrage signals. Typical workflow: strategy definition → historical backtesting → paper trading → live deployment. Key advantages: microsecond execution, 24/7 unattended operation, strict rule enforcement, managing multiple positions simultaneously. The biggest difference from manual trading: it removes fear and greed — the machine only executes rules, never "gambles to recover losses."