Algorithmic trading (automated trading or simply algo-trading) 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. Apart from profit opportunities for the trader, algo-trading makes markets more liquid and makes trading more systematic by ruling out emotional human impacts on trading activities.

Algo-trading provides the following benefits:

• Trades executed at the best possible prices

• Instant and accurate trade order placement (thereby high chances of execution at desired levels)

• Trades timed correctly and instantly, to avoid significant price changes

• Reduced transaction costs

• Simultaneous automated checks on multiple market conditions

• Reduced risk of manual errors in placing the trades

• Backtest the algorithm, based on available historical and real time data

• Reduced possibility of mistakes by human traders based on emotional and psychological factors

The greatest portion of present day algo-trading is high frequency trading (HFT), which attempts to capitalize on placing a large number of orders at very fast speeds across multiple markets and multiple decision parameters, based on pre-programmed instructions.

Algo-trading is used in many forms of trading and investment activities, including:

• Mid to long term investors who purchase in stocks in large quantities but do not want to influence stocks prices with discrete, large-volume investments.

• Short term traders and sell side participants benefit from automated trade execution; in addition, algo-trading aids in creating sufficient liquidity for sellers in the market.

• Systematic traders find it much more efficient to program their trading rules and let the program trade automatically.

Algorithmic trading provides a more systematic approach to active trading than methods based on a human trader's intuition or instinct.

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