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Algorithmic Trading
Definition
This is computerized automated electronic trading which executes trades based on pre-defined rules, constraints and benchmarks.
Using the term Algorithmic Trading :
The quantitative hedge fund manager is expected to develop algorithms that execute profitable trades in markets, both on the long and short side of the market. Some large institutions use program trading to hedge positions as well (these are essentially no more then stop-loss, i.e. sell orders, algorithmic trading instructions).
Pay Special Attention To :
For algorithmic trading to be successful over time, the rules and constraints of the system must be monitored and updated on a regular basis. There are few, if any, algorithmic trading systems that work in all markets at all times. The market may act irrationally at times and this is when these algorithmic systems often break down. Trading systems that trade quickly in times of market stress tend to do better than long term trend followers.
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Related terms
Quantitative Analysis
