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Algorithmic Trading Market Demand, Growth & Scope

Wed Dec 30 2020 05:58
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What do you know about algorithmic trading? Are you aware of its demand in the market, growth, and scope? Yes, most of the traders know that Algo trading is in huge demand these days and it is growing in a fast way. But what about the scope? Where do you see Algo trading in the next five years? 

Will it be in demand at that time too? Many opinions will be there if you ask market experts. So here we will explore the summary of all the expert opinions about algorithmic trading. 

We will also have a look at its demand and scope. Almost there is no need to talk about growth because it has shown huge growth in the past few years. 

But it is important to figure out the current trend of trading algorithms. What kind of trading strategy is in demand and what kind of trading software is being used by the traders. 

Know More About Algorithmic Trading 

Algorithmic trading has many names to it and all means the same. Algo trading, automated trading, or trading robots, all the names are the same. People use these terms in an interchanged manner in the trading markets. 

Trading strategies are the base of any trading system. When a trader uses all these trading strategies with the help of computer algorithms. This process has the name of the trading algorithm. Many trading systems are present in the market that use the same technique. 

Definition of Algorithmic trading 

When someone trades through computer algorithms, it comes under algorithmic trading. These are kind of trading bots or trading software. Trading services providers, brokers, or trading platforms offer such tools to their traders. 

Companies release this software after processes like backtesting, to check its performance. The conditions include high volatility, liquidity, and other live trading factors. Charge of an algorithmic trading system is never included in the brokerage fees of a broker. 

Market Demand For Algorithmic Trading 

There are many reasons for the huge demand for this trading tool or trading technology. Algorithmic trading first came into use during the 1980s. 

Earlier, algorithmic trading was only used by investment companies, hedge fund management companies. And by fund managers, trading account managers. 

Because all the traders need a medium to apply the same strategies for investment in high volume. But later on, it became an affordable technology for the individual traders also. 

Reasons for its demand 

During 2009-10, after the recession, there was a high demand for algorithmic trading. Not only because it makes buy or sell price actions easy for the companies. But the capability of such a trading system boosts the profitability in the market.  

No matter if it was forex trading, stock trading, or commodity trading. Trading platforms are not even a matter of issue with algorithmic trading. 

The high compatibility of such trading systems makes them easy to use. Traders can use it with Metatrader, Tradestation, and other trading software and platforms. 

Algorithmic trading Growth in 2020 

If we compare algorithmic trading’s current market size with the previous few years. Then you will see how much it has grown in a few years. In 2020, the Compound annual growth rate (CAGR) of algorithmic trading is captured around 6%. 

Algorithmic Trading Scope 

New traders always ask: will algorithmic trading grow in the next few years? If you are also looking for an answer, then don't believe anything without research. Check the data of its growth and the forecasts made by actual financial institutions. 

Algorithmic Trading Forecast By 2025 

Considering 2018 as the base year for the algorithmic trading forecast. The CAGR or compound annual growth rate will go up to 11% by 2025. 

In 2018 the algorithmic trading had a market size of over $10K million, will go over $25K million. Various markets will have different impacts on Algo trading on them.  

Every market will see huge growth in the usage of Algo trading. These trading systems are being used by more than half of stock traders in the global market. 

Currently, around 60% of US stocks are traded using Algo trading systems. More than 80% of US stocks will be traded using Algo trading by 2025. 

Trends In Algorithmic Trading 

Algorithmic trading will be a trending trading tool in the upcoming few years. Many market researchers, market makers, and analyzers have their reports. 

You can find these reports about the market data of Algo trading on the web. Various segments and markets will see different effects of algorithmic trading. The two common trends will be as follows. 

Institutional Traders Will Get More Advantage 

Institutional traders are always a major role player in algorithmic trading. These automated trading systems were for institutional traders, hedge funding companies, more. 

If we see the current scenario of the Algo trading. Then the institutional traders, fund managers, and operators are taking the most advantage. 

But, if you see the trend about Algo trading, then institutional traders will get more help in the future. 

Investment Will Boost In Trading Technologies 

More institutional traders will start showing interest in trading technologies based upon algorithms. Then more investments will be there in trading technologies. 

Companies that provide financial technologies to the trading world will see more growth. Along with it, such companies will see huge growth in stock market listings. So algorithmic trading will be seen as the major sector to invest in.  

HFT Trading Or Algorithmic Trading? 

HFT trading or high-frequency trading is a subcategory of algorithmic trading. But still, many new traders get confused about both of the terms used in the market. High-frequency trading also has some other types like Ultra high-frequency trading.  

These kinds of tradings are completely based upon computerized algorithms. These algorithms are used to develop specific trading robots. 

And those robots are later used as dedicated programs by the market traders. Deep level information is also a part of algorithmic trading to make it more accurate. 

FAQ About Algorithmic Trading 

Q: Algo trading and black box trading: Are both the same? 

A: Algo and black box trading are the same as trading based on algorithms that are blackbox trading. 

Q: Automated trading and Algo trading: Difference? 

A: Blackbox trading, automated trading, algo trading, all these are the same. Other names for such trading systems are expert advisors, trading bots, etc. 

Q: Is it profitable? 

A: Algo trading is profitable, that is why it is growing every year. Its CAGR is supposed to grow by up to 11% by 2025. 

Conclusion- Algorithmic trading 

Trading with algorithms will make trades more profitable. But trading can be more beneficial if you are using the right trading system. These systems run on tested strategies that's why they perform better in the market. 

In the backtest, various signals, analysis, fundamental analysis, and past performance are the part. Traders analyze these factors to generate better electronic trading profits. 

Algorithmic trading systems are growing because they not only offer automated trades. But also they are providing high returns on investments in various financial markets. Using such systems is beyond auto trading. 
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