Algorithmic trading (also automated trading, black-box or alo trading) is trading executed by a computer. It rules out all human aspects (fear, greed, fatigue) and can do the job on many instruments in parallel, much faster than a human being.
The trades generated by algorithmic trading are systemic and under 2 identical situations roughly the same results will be obtained (in the case of a trader this is not the case, as he might be distracted or working on something else).
There are as many different implementations of algorithmic trading as you can think of different algorithms.
There are however a few distinct types :
- based on speed (HFT)
- arbitrage (taking advantage of market inefficiencies)
- trend following
- using sophisticated proprietary mathematical methods
