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What is Algorithmic Trading?

Only during the 1970s computers came into use. Then only computers were introduced in the American Market. Until the 1970s, forex trading was conducted using phones. There were limited participants like institutional investors. It was a closed market and there existed little transparency. After the 1970s, the speed increased and trading was done rapidly. And also, the level of transparency increased. The reasons for and influences behind the pricing became transparent. With the rapid advancement in technology, the ability to trade in real-time increased. With the increase in the use of computers, traders turned to use algorithmic trading.

What is a forex algorithm and how does it work?

In its basic form, an algorithm is a set of rules and directions used to solve problems. It includes complex formulas and mathematical models to calculate an outcome. In forex trading, an algorithm works to execute a set of instructions. The instructions are based on forex parameters. The programmed instructions are fed into computers to filter, analyze, and execute the forex trades. It takes into account a lot of parameters like price, timing, lot size, risk parameters, stop losses, and take profit. And executes it in real-time trading.

The advantage is a trader can choose the parameters which suit his trading and form his own trading strategy.

Then he could use the algorithm to find an edge in his trading. The algorithm then analyzes the market and executes trades with the set parameters. When you opt for auto trading, the trading will be done without the need for your input. If you opt for signal-based trading, the system will give you alerts and you can execute your trading. The advantage is an individual or a firm can execute a lot of trades in seconds.

Conclusion

The faster your algorithm and the computer system, the higher your advantage. The advantage you have over your competitors. Trading platforms and brokers have direct market access. But individual traders don’t have direct market access. So, if you opt to use algorithmic trading you should choose traders with direct access to the market.

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