Algorithmic Trading: A Study

Abstract

All across the investment banking industry there is a buzz with talk of algorithmic trading. Algorithms have become common feature in the trading landscape. These techniques can be defined as the placing of a buy or sell order of a set quantity into a quantitative model that automatically generates the timing of orders and the size of orders based on goals specified by the parameters and constraints of the algorithm. These mathematical models analyze every quote and trade in the stock market, identify liquidity opportunities, and turn the information into intelligent trading decisions. Algorithmic trading, or computer-directed trading, cuts down transaction costs, and allows investment managers to take control of their own trading processes. It is a style of trading and not a separate business. This paper discusses the various popular trading algorithms, the trends, area of concern and impact of algorithmic trading. Algorithm innovation continues to offer returns for firms with the scale to absorb the costs and to reap the benefits