Why Retail Traders should use Algorithmic Trading?

Today’s modern financial market is driven by algorithms. This modern approach to trading has been proven to bring unexpected returns, and profits even from highly volatile markets.

Precisely the reason why learning algorithmic trading for retail traders can be so important.

But, what is it exactly?

What is Algorithmic Trading?

In layman’s terms, algorithmic trading can be simply described as, placing orders and generating trade signals based on a defined set of instructions called algorithms.

These algorithms have access to real-time and historical data which makes it easier to strategies and execute bulk trades based on the different time zones, and market conditions. 

The algorithms are instructed and trained to make decisions regarding executing the trade at different times to obtain the best price.

Let’s understand the benefits of learning algorithmic trading from a retail trader’s point of view:

Benefits of Algorithmic Trading for Retail traders

Algorithmic trading was barely practiced among retail traders for many years, leading to they have been deprived of its benefits. Not any more! Retail traders are showing immense interest in algorithmic trading since companies or brokers like TD Ameritrade are supporting retail algo traders.

Algorithmic traders have multiple added advantages over manual traders which can heavily impact their portfolios in terms of the size of trades, profits, managing risks, trade in new markets, competing with shark traders, and many more.

Speedy execution of bulk trades

With algorithms, your system can take quick actions, such as buying/selling bulk stocks within a matter of mere milliseconds to microseconds, depending on market fluctuations.

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Speedy execution of trades depending on the market conditions can be difficult for ones who manually trade. That is the shining area for algorithmic trading.

Trading decisions free from human emotions

Traditional retail traders for many years have traded on gut instincts based on the ‘feel’ of the market which might not always work unless you’re a very experienced trader who has a lot of insights to draw upon.

Human emotions can highly impact the decision-making when it comes to trades, there can be greed or fear involved as well as personal bias. Whereas algorithms are unaffected by those feelings and can quickly act upon time-sensitive situations.

Systematic and Planned trades

Systematically planning your trades is always advised. That is what algorithmic trading brings on the table for retail traders. Systematic trading with preset conditions like quantity, price, time, and other market conditions being met can make accurate predictions and thus, makes trading more advantageous.

Identifying opportunities in the markets

Quantitative trading has been gaining popularity because it allows traders to identify and capitalize on trading opportunities. In addition to offering profit opportunities for traders, algorithmic trading allows markets to be more liquid and trading to be more systematic since human emotion is excluded from the equation.

Eliminate constant market monitoring

Trading is time-sensitive. Algorithms help to constantly monitor, make decisions and execute trades based on market movements in the absence of humans. This happens in real-time, live, and with precision. This eliminates the need to continuously monitor the market and drive focus towards the betterment of the other aspects of your trade.

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Bring accuracy with quantitative analysis

Trading algorithms can analyze historic data to assist traders in analyzing performance statistics such as alpha, beta, and sharpe ratios to determine how accurately the strategy performed.

Backtesting those strategies in a simulated environment and quantifying their return over risk provides traders with valuable experience before they run them on live markets.

Risk Management

Algo trading strategies are backtested with real-time and historical data, which if done correctly can make the strategy accurate and makes it risk-proof to employ directly in the live market. Higher the profit, the bigger the risk involved. With the benefits, it also exposes you to a lot of risks such as the inability to act correctly due to a lack of algorithms, lack of knowledge, and updates in the technology part of the trader. 

How to start Algorithmic trading as a Retail Trader

Algorithmic Trading is an advanced level of trading. It requires proper knowledge of programming platforms, trading strategies, technical indicators, backtesting, and its application in live markets.

This might requires a lot of dedicated hours of learning and practice but will surely bring you the expected outcomes. Usually, people assume that you have to specialize in some area to excel in algorithmic trading. But it’s all a myth. 

The key to making a successful career in algorithmic trading is your interests and willingness.

Here’s what you need to know


  1. Analytical skills
  2. Mathematical skills
  3. Programming skills
  4. Understanding the Financial Markets
  5. Statistics and Probability
  6. Knowledge of financial markets and trading
  7. Logic and reasoning
  8. Quantitative analysis

Algorithmic Trading Strategies

Although there are many trading strategies, here are a few most commonly used ones

  1. Momentum Strategies
  2. Arbitrage Strategies
  3. Market Making Strategies
  4. Sentiment-Based Trading Strategies
  5. Machine Learning Trading Strategies
  6. Market Making Strategies
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Algorithmic trading is a way to combine financial markets and computer software which makes trading easier and quicker. Now that you are familiar with the benefits and skills required, this concludes why retail traders should also upskill and game up.

Pursuing Algorithmic trading might seem difficult, but on some level that’s true. But you can easily overcome them by opting for a professional algorithmic trading course such as Executive Programme in Algorithmic Trading (EPAT) by QuantInsti. 

Saurabh Chaudhary
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