We often talk about the advancements in the online trading systems. When we consider these there are two terms that are often spoken about- algorithmic trading and automated trading. Both these are often confused with each other. They are so similar yet so different from each other.
Algorithmic trade can be automated but it doesn’t always have to be. To understand and find the timing, price and other attributes of your order in trading you would be relying on algorithms with preset strategies. This is algorithmic trading. You still have a say in the whole process. You can impact the decisions being taken in the process. Fund managers are known to rely on this type of trading when they are looking to make large transactions like buying or selling huge assets.
The algorithm at the core would guide you to take all major decisions. They work strictly on the basis of the instructions fed and the inputs given. These systems however do not independently take important financial decisions.
This is the type of algorithmic trading that is automated. These are made as sophisticated systems that can learn and evolve in the process making them fit to take financial decisions. The entire quantitative trading here is automated. Here every process involved, from creation to the execution of the order would be done by the system. The algorithm in this system would fully automate the order. This is made possible by linking the computer with the algorithm running, to the real time market data. Unlike non-automated systems these do not simply rely on historical data for their strategies. Automated systems rely on real time data that is updated instantaneously. The system functions on its own. But it is not uncontrollable altogether. There is always a risk management strategy built in and dedicated resources allocated to handle the risks and make any changes as and when required. There are several automated trading systems available like the 1G Profit System.
One other type of trading that we hear about is the HFT or high frequency trading which is a subset of the automated trading system. As the name indicates these are high frequency trades. These are done from the smallest available timeframes to gain maximum profits in the shortest periods. Price variations are being monitored for continuously to make the right decisions when required. There are also some sophisticated HFT systems that make use of machine learning and artificial intelligence to make better decisions. To understand automated trading systems better, read more about 1G Profit System and similar popular automated trading systems.