Definition

Algorithmic trading is the use of computer programs and predefined rules to automatically execute trades based on mathematical models, technical indicators, timing, or other market conditions.

These systems analyze data and place orders without requiring manual intervention, enabling faster execution and more systematic decision-making.

Algorithmic trading can range from simple rule-based strategies to more advanced models incorporating statistical analysis or machine learning.

Example in Context

A trader programs a system to buy Bitcoin when the 50-day moving average crosses above the 200-day moving average and sell when the opposite occurs.

Instead of manually watching charts, the algorithm monitors the market continuously and executes trades automatically when the conditions are met.

Frequently Asked Questions

Is algorithmic trading the same as automated trading?

Algorithmic trading is a broader concept that includes any rule-based trading system. Automated trading is a form of algorithmic trading where trade execution is handled automatically by software.

Does algorithmic trading guarantee profits?

No. Algorithmic trading follows predefined logic, but market conditions can change rapidly. Performance depends on strategy design, risk management, and execution quality.

Do I need to know how to code?

Not necessarily. Some platforms allow users to deploy pre-built strategies or configure bots without writing code, while others require programming knowledge.

Is algorithmic trading only for institutions?

No. While institutions use complex algorithms, retail traders can also use algorithmic trading tools and bots.

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