What Is the Difference Between Algorithmic Trading And Automated Trading?


Frankly, many traders or people involved in online trading often say that automated trading and algorithmic trading are the same. They are both the result of automation. But like many others, I also think they are not the same. Although they have many similarities, they also have some differences.

Algorithmic Trading

Algorithmic trading refers to a transaction execution strategy that is typically used by portfolio managers to buy or sell large amounts of assets. They aim to minimize transaction costs under certain risk and time constraints.

Such a system follows the rules that have been defined to determine how to execute each command. People often think that this system is an inexpensive buying and selling decision – but it is not.

An algorithmic trading system is offered by many brokers and only executes the orders given. Their job is to get a good price (compared to various benchmarks) and minimize the impact of trade. This is done by reducing orders and reacting dynamically to market events.

Of course, there are investment decision-making algorithms and that’s where automatic trading comes in.

Automated Trading

Automated trading, often confused with algorithmic trading, is complete automation of the quantitative trading process.

As such, automated trading must summarize: quantitative modeling and tracking indicators to determine the beginning and end of trade; portfolio risk monitoring; and algorithmic trading.

This type of trading is usually done by quantitative hedge funds that use appropriate execution algorithms and transactions via DMA or sponsor access.

So, what do you think of my point of view? And if you have any topics in mind that you want me to cover for you then please let me know.

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One thought on “What Is the Difference Between Algorithmic Trading And Automated Trading?

  1. 0

    I agree there is a difference between automated trading and algorithmic trading. Though maybe algorithmic trading can be considered a subtype of automated trading. As an individual rather than a hedge fund firm or manager, I use algos I built myself and feel no need for the other services you list under “automated trading”.
    I used some of the resources presented by Data Hunters to help build my models; they might be interested in debating the differences between automated and algorithmic trading, as well.

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