GUIDE
What Is Algo Trading?
Algo trading is short for algorithmic trading: using predefined rules and software to analyze market conditions and perform systematic trading actions.
How does algorithmic trading work?
A strategy defines conditions such as when a trade may be considered, when a position may be exited, how much capital may be allocated and what risk controls should apply. Software then evaluates those rules against available data.
Why use algo trading?
Systematic rules can make a trading process more repeatable and easier to test. Automation can also reduce repetitive manual tasks when the required market-data and execution infrastructure is available.
What are the risks?
Algorithmic trading can amplify mistakes if rules or integrations are incorrect. Market volatility, data problems, API failures, slippage, liquidity and model assumptions can all affect results.
Where does backtesting fit?
Backtesting lets a researcher examine how a defined strategy behaved on historical data. It is useful for research but cannot guarantee future performance.