Investors are always looking for new vehicles to make money. They move from one financial instrument to another in search of the pot of gold at the end of the rainbow. But most investments are not very stable and they offer more opportunities to lose money than to make it. While equity trading has been around for many years and has proven itself to be somewhat secure and stable, traders continue to be search for the most risk-laden instruments and take their chances on winning big.

Truth be told, there really are very few trading vehicles out there these days and they seem to be dwindling from year to year as regulators and government authorities uncover their deviant nature and come down on those that offer them.

INDIA IS ONE OF THE FEW EMERGING MARKETS THAT HAVE BEEN OFFERING COMPUTERIZED TRADES AND IT IS NOW DISCOVERING THAT THERE ARE LIMITS TO HOW FAR IT CAN GO.

The world of binary options has come under scrutiny of late and algorithmic trading is the next trading instrument to go under the radar.

Algo-Trading

Algorithmic trading, often called automated trading, black-box trading, or simply algo-trading, became a tool for institutional investors in the beginning of the 1990s. It is the process of using computers programmed to follow a defined set of instructions for placing a trade in order to generate profits at a speed and frequency that is impossible for a human trader. The defined sets of rules are based on timing, price, quantity or any mathematical model.

Since the main ingredient in trading profit and loss is personal choice and decision making, algo-trading makes markets more liquid by offering trading in a more systematic manner by ruling out human emotional impacts. By and large, the main objective of algo-trading is not necessarily to maximize profits but rather to control execution costs and market risk.

Algorithmic trading around the globe has become a business estimated at $400 to 600 million per year.

How It Works

Here’s an example of how algo-trading works: