The Indian stock market has undergone several changes throughout the years. New trading strategies have emerged, market pace has accelerated, and settlement times have decreased as a result of the fast digitization and integration of cutting-edge technologies.
Although conventional trading has been the standard for centuries, due to a number of advantages, technology-enabled algorithmic trading is rapidly dominating the industry. We will compare these two trading strategies in-depth in this article and determine which is the most advantageous for investors.
Fundamental Distinction
In conventional trading, individuals trade stocks, options, currencies, and other instruments manually. Based on their own research, economic data, and other market conditions, the traders decide what to purchase and sell. When making a trading choice, this strategy entirely depends on human judgment, intuition, and emotional intelligence.
Algorithmic trading, on the other hand, uses sophisticated algorithms and computer programs to automate trade. After a while, it may be programmed to make judgments on its own using pre-established rules, historical data, and market indicators, negating the need for human interaction.
This difference allows for a comparison to be conducted in three areas: risk management, speed, and adaptability.
Speed and accuracy
Algorithmic trading is unquestionably more accurate and executes considerably faster than traditional trading. The process of automating a stock’s quantitative analysis, placing an order against it, and taking advantage of various market chances is all done by the algorithms. This breaks through the limitations of traditional trading by allowing a trader to execute hundreds of trade orders at once.
Flexibility and customization
Algorithmic trading facilitates the customisation of a strategy at the start of a trading session and operates in a manner that enables the capture of trading opportunities in a certain method. Custom algorithms are available to traders, allowing them to alter their strategy. Traditional trading, on the other hand, moves far more slowly, allowing the trader to examine each transaction and tailor it to their own investing objectives and trading philosophies.
Risk management
Algo trading is characterized by automation, which enables traders to execute several trade orders with little assistance from a person. Also, implementing circuit breakers and other risk controls is common to prevent extreme market disruptions as Regulations aim to mitigate risks associated with algorithmic trading, such as market manipulation, abusive practices, and systemic issues. It also makes it possible to use sophisticated risk and trade management techniques quickly, which lowers the possibility of mistakes. Additionally, by automatically leaving on a stop loss, algorithmic trading helps limit an investor’s loss. In this situation, traditional trading may be vulnerable to fear, greed, and emotional decision-making.
Taking everything into account
Whether you go for traditional trading or new-age algorithmic trading relies on a number of things. It can be limited, though, to risk tolerance, cash or resource availability, and trading experience. To better grasp the nuances of the market, novice traders can begin with traditional trading. However, when they acquire the necessary knowledge, they must convert to algorithmic trading in order to get superior returns.
It is critical to understand that each approach has benefits and drawbacks of its own. As a result, in order to increase your chances of finding profitable trading opportunities in the stock market, you should select the strategy that most closely fits your trading objectives and style.
About Hemant Sood:-
Mr. Hemant Sood, a visionary first-generation entrepreneur and angel investor hailing from Ludhiana, Punjab, embodies the essence of continuous learning. His unwavering commitment to personal and professional growth is exemplified by certifications in Business Management from prestigious institutions such as Harvard Business School and MIT Sloan School of Management. With a diverse portfolio and keen interests in business networking, real estate, fintech, and philanthropy, Mr. Sood has established himself as a dynamic figure in the entrepreneurial landscape. His insightful talks, centered around investing,selfgrowth, and the stock market. This reflects not only his expertise but also his dedication to sharing knowledge and contributing to the broader community. Beyond his entrepreneurial pursuits, Mr. Hemant Sood is a philanthropist with a heart for making a positive impact on society, showcasing a holistic approach to success.
