Technology consistently drives any changes in trading, and so long as it provides a net benefit, people will be open to the idea of using it. Given that trading accounts for a sizeable portion of many of the world’s most prominent economies, technology companies are encouraged to develop innovations that will help alleviate some of the stresses and strains associated with trading in some of the world’s most valuable markets.
Formatting an algo trading model to do your trading isn’t a case of entering a random number 1 to 11 and watching it scalp trade for you or ride the wave of market volatility. Professionals use these tools and implement the highest-grade tech to assist them in trading. Many of the top hedge funds and financial institutions use them as a tool to supplement their broader strategy rather than simply giving them free rein.
However, with the rise of AI and its increased sophistication, algo trading models could be in a prime position in the market to utilize AI, like trade AI drive a lot of the price action, and dictate bullish or bearish sentiments entirely of their own volition.
The Rise Of The Algorithmic Trading Program:
Although AI and other technology might have only sprung into the wider limelight over the last few years, many of the top traders on Wall Street and in the UK have implemented more expansive algorithmic trading programs into their strategy since the 1980s.
While the percentage of trading performed by these programs has steadily increased over the decades, there are a number of reasons why algo trading has become the dominant force in all markets. Algorithmic trading models can cut through a lot of the noise and implement technology solely based on numbers.
Removing Emotions From Trading:
Emotional trading is one of the leading causes of people losing money. Still, algorithmic trading bots can be programmed to buy in one price range and sell in another, totally removing that emotional detachment. Prominent institutions have a different approach to algo trading, often using them to protect from serious market volatility, the likes of which we see in some forex markets and cryptocurrency—which can experience eye-watering volatility.
Algorithmic trading bots can also help set buy orders during significant market dips. They can be programmed across various markets, including cryptocurrency and penny stocks.
Anything that will help streamline the tumultuous nature of trading and remove the negative aspects is met with open arms, both by institutions and retail traders. Given that more money than ever is piling into AI and algo trading technology, it’ll continue making inroads into the trading world, at least in the short term.
The Rise Of Retail Trading:
The number of retail traders in the stock market has shot up from 3% in the mid-1990s to around 22% last year, with this number considerably higher in other markets – such as crypto. Ultimately, it’s become a lot easier for us to trade on our phones and laptops.
Many of the fees and barriers that existed before the internet are no longer a factor, which has meant that retail traders are able to fully use the tools available—with algo trading in growing demand. Retail traders have the most issues controlling their emotions in trading – which is completely understandable.
Not only do professional traders and hedge funds have the best minds working with them, but they’re detached from the funds, as it’s not coming out of their personal finances. Retail traders use a lot more of their personal wealth, which naturally brings higher emotion. So it’s no surprise to see retail and algo driving a lot of the market online.
Trade Safely Within Your Means:
You should never trade any market with money you can’t afford to lose, and you must perform due diligence before investing in any product. Even if you use algorithmic trading bots to remove the emotion, this isn’t a guaranteed way to print money. If you don’t understand the market or the tools you’re using, you will likely lose money quickly, so be extremely careful before exploring this technology.
Summary:
The increased sophistication in AI tech and the ease of access drive most new traders to use algorithmic technology. Both of these components are unlikely to take a backstep anytime soon, with trillions of dollars going into AI and algorithmic-based trading technology and even more retail traders using their phones as their trading hubs.
Although the number of institutions using this technology might plateau, there will be plenty of retail activity to buoy it up. Who knows, maybe in a few decades, we could see trading markets that run entirely on AI and algorithmic technology. Either way, it’s probably a safe bet to say there’s a lot more in store for algo tech companies looking to make a name for themselves in this industry.
