Hot Topic

Algorithmic Trading

Rule-based execution: how automated strategies are built, validated and deployed, and what automation does and does not change.

Definition

Trending

What is algorithmic trading?: Algorithmic trading is a method of executing trades using predefined rules and automated systems, where the rules specify entry, exit and position size in advance rather than being decided at the moment of the trade.

2 pieces published on this topic · Updated 2026-09-01

Understanding algorithmic trading

Algorithmic trading separates two things that discretionary trading keeps fused: deciding what to do, and doing it. The decision is made in advance and written down as rules; the execution is handled by software that applies those rules without reconsidering them. That separation is the entire substance of the approach, and everything else follows from it.

The immediate consequence is that a strategy becomes testable. A rule set precise enough for a computer to execute is also precise enough to replay over years of historical data, which is not true of an intention held in a trader's head. This is why automation and backtesting arrive together. They are two uses of the same artifact.

What automation does not do is supply an edge. A rule set that loses money slowly when executed by hand will lose money reliably and at scale when executed by software. Automation removes hesitation, inconsistency and the missed entry; it removes nothing about whether the rules were any good. The discipline it enforces is real, and it is enforced on a bad strategy just as faithfully as on a good one.

Common questions

Is algorithmic trading only for institutions?: No. The infrastructure that once required a trading desk is now available through broker APIs, and the strategies that suit a retail account are generally simpler and slower than institutional ones. What separates the two is latency and capital, not access.
Does algorithmic trading require knowing how to code?: It requires the ability to state a strategy unambiguously, which is a different skill from programming. Platforms increasingly accept a plain-language description and convert it into a structured rule set, but the precision has to come from the person describing it.
Is automated trading legal in India?: Trading your own account programmatically through a broker's authorised API is permitted, and brokers publish those APIs for that purpose. Managing other people's money, or pooling funds, is a regulated activity with its own registration requirements, a distinction worth understanding before scaling anything.