By ForexNewsNow
In the context of globalization and the general computerization of world stock markets, a relatively new trading segment based on using special means of automation of financial operations is gaining a foothold. Trade automation allows good use of market trends activity and strengthening the mutual influence of world markets. With undeniable advantages over the traditional method of stock transactions, algorithmic trade allows neutralizing many of the shortcomings inherent in exchange trading.
At the same time, disputes about the nature of the influence of algorithmic trading on markets and the consequences of further growth of this segment do not cease. In response to the wide
distribution of algorithmic trading periodically, one can hear calls for active measures to curb its spread. And one of the main problems is the reaction to market slumps which will be discussed in this article.
There have been multiple mentions from AI trading corporations or small companies that there was very little reaction from their software in regards to the market slump. This has mostly to do with the design of these platforms. According to the representatives of the crypto sphere’s successful AI trading company Bitcoin Billionaire app, the software is always designed with small market changes in mind.
It is very actively being used in stock and FX trades and is usually referred to as HFT (High-Frequency Trading). The large market slump that has occurred over the COVID pandemic did not really affect the way the AI works. Sure, it did not take advantage of the large slump and started shorting on FX, but it is now starting to regain its effectiveness through these small, yet profitable corrections that every financial market is going through these days.
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With the development of computer technology and the advent of Internet trading in the stock market, a separate direction of commissioning began to develop. Operations based on the use of algorithmic trading systems. With this type of trading, transaction algorithms are embedded in a special computer program, which, based on processing market data, makes decisions and makes stock transactions.
When using algorithmic systems, the trader does not directly participate in the process of trading stock assets, only monitoring the overall adequacy of the trading system to the market situation. Behind Algorithmic systems are also called trading robots with a high degree of autonomy and automation of nested procedures.
Full automation of the trading process has significant advantages. The first of these is the exclusion of the subjective factor from the trading process. This is achieved through continuous adherence to embedded algorithms and allows you to completely eliminate erroneous operations performed under the influence momentary emotions of a trader, motives of fear, excessive joy from previous successful transactions when the trader is losing vigilance as well as all kinds of “Mechanical” mistakes made by traders in inattention.
A trading robot can’t get tired, sick, not affected by the weather, able to work continuously and around the clock for a long time, which is especially important in an era of strong interconnections of world stock markets.
Other advantages of algorithmic trading are formed by the high speed of decision-making and transactions, which allows you to stay ahead of more slow bidders – traders. Robots are able to analyze a large number of diverse information, while simultaneously tracking hundreds of stock quotes and related indicators, using sophisticated calculations to processing.
Another advantage of algorithmic trade is the ability to carry out operations for several exchange strategies at the same time, which is especially important when managing a portfolio that includes a variety of financial instruments.
Obviously, the capabilities of a trading robot are, in many ways, superior to the capabilities of a trader. As a result, – robots are able to demonstrate significantly better indicators of trade profitability. But it should be noted that the recent events surrounding the coronavirus have been very tough for algorithmic traders.
First of all, COVID-19 has hit every possible field of business in the world. Cryptocurrencies have suffered, and the price of the stocks fell significantly. AI trading robot is created to determine any change in the market and look for the best possible way, but in the current situation, robots become confused as well and started panic buying of decreased stocks. The fact shows that while algorithmic trading is indeed a good thing, it does not have emotions, which sometimes is vital in trading. AI trading may make the market crash even worse.
By ForexNewsNow