Algo-trading: Why it is a boon for traders, strategies to follow and how stop-loss modification works – Explained

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There is hardly any sector which remains unimpacted by the growing and ever advancing technology, and stock market is no exception to this. Share bazaar traders often remain interested in knowing about the kind of technology and tools they can take help of so that it can act as a catalyst in their wealth creation. Algo Trading is garnering immense interest from stock market trader as it is a form of automated trading that uses computer programs to analyse market data based on pre-defined parameters. Here in this article Hemant Sood, Managing Director, Findoc Group and Angel Investor in Start-ups, shares his knowledge on Algo Trading for stock market investors:-

“Algo-trading has become a boon for traders. It helps in execution of trades at best possible rates, which are not only accurate but instant. It removes human emotional quotient towards a particular stock. We need various strategies for implementing perfect trades for maximum benefits,” says Hemant Sood.

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Explaining how Algo-trading can help in developing delta-neutral strategies, Sood adds, “If your portfolio as an investor is delta neutral, the chances are that market movement will not affect your portfolio. Delta means a change in the price of a derivative. It is concerning that price that is underlying an asset. So, in short, delta neutral uses multiple positions to balance both negative and positive deltas.”

Moreover, Sood says, “For an investor, delta-neutral strategies are challenging to manage because of the continuous movement of the asset. But Algo-trading software can make it easier for you to know or calculate the delta of your position. So, it is like you are receiving a delta position in every new second which seems like 100 times faster than the manual process.”

Elaborating on how does stop loss modification work in Algo trading, “In the stock market, everything is unpredictable; thus, it is essential to protect your portfolio and manage it correctly. Now, Algo-trading can be a quick help for you here. However, it is generally difficult to look into large portfolios and handle them efficiently. So, what Algo-trading does is that it provides easy solutions which are in-built in our predefined strategies.”

“No wasting time on screens and waiting for a manual decision-maker to take care of the market movements. Instead, put a stop loss of a certain percentage, and here you go, tackling risk automatically,” Sood concluded.