Just like any other choice, there are pros and cons using algorithmic trading strategies and automating the process of trading. Let’s get down with the pros. Based on many expert opinions in investments human emotions could be toxic and faulty when it comes to trading, one perhaps most acknowledged pros of Algorithmic Trading is taking away human emotions and errors out of trading.
Another huge advantage of algorithmic trading is the increase of speed in action of execution to the market as well as possibilities to test strategies using Backtesting and paper-trading in a simulated manner. Testing algorithmic strategies determine the viability of the idea behind trading strategies.
Another vastly discussed advantage of algorithmic trading is risk diversification. Algorithmic trading allows traders to diversify themselves across man accounts, strategies or market at any given time. The act of diversification will spread the risk of different market instruments and hedge them against their losing positions.
Making trading automatically using algorithmic trading decreases the operational costs of performing large volumes of trade in a short period of time.
There are also a few other advantages such as automation in the allocation of assets, keeping a consistent discipline in trading and faster execution.
Now let’s get on with some of the cons of using algorithmic trading. Perhaps one very discussed issue with using algorithmic trading is constant monitoring of the strategies which to some traders could be a bit stressful since the human control in algorithmic trading is much less. Though it is widely common to have lost control features included in strategies and algorithmic trading software (automated and manual ones).
For most individual traders having enough resources could be another disadvantage of algorithmic trading. The algorithmic trading itself reduces the cost of executing large orders but it could come expensive as it requires initial infrastructure such as the software cost or the server cost.
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