GlossaryIntermediate
Algorithmic Trading
Trading executed automatically by a predefined computer program, rather than a human manually placing each individual order.
Algorithmic trading is trading executed automatically by a predefined computer program following a specific set of rules, rather than a human manually placing each individual order — the program can monitor markets and react far faster and more consistently than manual trading allows.
Algorithmic trading spans a very wide range of actual sophistication, from a simple automated rule (such as a basic moving-average crossover) to highly sophisticated institutional strategies, including some forms of latency arbitrage (see Kaavon's "Latency Arbitrage" glossary definition) and market making.
Examples
- A simple algorithmic trading strategy might automatically buy whenever a specific moving-average crossover signal occurs, with no manual order placement.
- Algorithmic trading spans a wide range of sophistication, from basic automated rules to highly sophisticated institutional strategies.