Algo City

Example Uses of Algorithmic Trading

Large Orders

Buying a thousand dollars worth of some stock is usually no problem, but what happens if you’re a mutual fund or wealthy investor who wants to buy millions of dollars worth? In the old days, your broker would ring up other clients and even other brokers to see if they were interested in selling some stock. Your broker would also buy some of the stock on the exchange, splitting your large order into a few smaller orders, each one entered into the market one at a time, over many hours or even days, until your large order was completed. Nowadays, computer programs replace the broker. Computers connect to multiple exchanges simultaneously, placing hundreds of small trades in multiple markets over many hours or days, until your large order is completed. A big benefit of having no human interaction is that information leakage is reduced. In the past, multiple brokers and wealthy clients knew about your trading intentions, and thus could trade against you. Nowadays, computers place the small orders into markets at random times throughout the day, dramatically reducing the chance of other market participants being able to see your trading intentions.       <<< Previous      Next >>>