Algo-trading, a.k.a. algorithmic trading, is a modern way of trading in financial markets (e.g., stocks, currencies, or commodities) where trade orders are entered automatically using a computer program. The human factor is replaced by an algorithm that independently decides whether to buy or sell based on predefined rules. These rules can consider various variables such as price, time, trading volume, or other mathematical and statistical models.
The main advantage of algo-trading is the huge speed and efficiency with which the program can respond to market opportunities, which is impossible for a human trader. Systems can perform thousands of transactions per second, eliminating the emotional decision-making that often leads to errors. The best-known forms include High Frequency Trading (HFT), which takes advantage of minimal price movements. Although highly efficient, algo-trading requires advanced technical knowledge and carries the risk of system errors or technology failures.
