Algorithmic trading
Family V · Platforms
Not to be confused with api trading, social trading, vps for trading.
Algorithmic trading is the execution of orders by a computer program that follows a predefined set of rules, rather than by a human trader making each decision manually. The rules may be simple, such as splitting a large order into smaller pieces over time, or complex, such as reacting to price, volume or volatility conditions. The term describes the method of order generation and routing, not the strategy's profitability or the asset traded.
How an algorithm decides and sends orders
An algorithm receives market data, evaluates its rules, and produces order instructions that are sent to a venue or broker. Common rule types include time slicing, volume participation, pegged orders and statistical triggers. The program may run on a trader's own infrastructure, on a broker's server, or inside a platform's scripting environment.
Because the rules are explicit, the same inputs should produce the same order behaviour, which makes the method testable and auditable. That reproducibility is separate from whether the strategy makes money.
Worked example: volume participation
A fund wants to buy 500,000 shares but does not want to send the whole order at once. It uses a volume participation algorithm set to target 10% of expected market volume.
The algorithm repeats this calculation in each interval until the order is filled or the schedule ends. Actual fills depend on available liquidity and the venue's matching rules.
Where it sits among trading methods
Algorithmic trading is often contrasted with manual trading, where a person clicks or types each order. It is also distinct from automated signal generation: an algorithm can execute a human's decision, or it can generate and execute its own decisions. Regulatory treatment, disclosure requirements and venue access rules for algorithmic trading vary by jurisdiction and by broker, so the operational details are not universal.
Often confused with
- api trading
- API trading is the use of a programming interface to send orders, receive market data and manage positions on a trading venue or broker account without manual interaction with a graphical platform.
- social trading
- Social trading is a brokerage feature that lets clients view other traders' positions and performance and optionally mirror their trades automatically, with the platform handling execution and position sizing.
- vps for trading
- A virtual private server for trading is a remotely hosted computer that runs trading software continuously, providing a stable, low-latency connection to a broker's servers independent of the trader's local machine.