Automatic forex trading wiki

For trading using algorithms, see automated trading system. Please help improve it or discuss automatic forex trading wiki issues on the talk page. This article needs to be updated.

Please update this article to reflect recent events or newly available information. The lead section of this article may need to be rewritten. The reason given is: Mismatch between Lead and rest of article content. Please discuss this issue on the article’s talk page. They were developed so that traders do not need to constantly watch a stock and repeatedly send those slices out manually. The term is also used to mean automated trading system.

These do indeed have the goal of making a profit. Also known as black box trading, these encompass trading strategies that are heavily reliant on complex mathematical formulas and high-speed computer programs. Such systems run strategies including market making, inter-market spreading, arbitrage, or pure speculation such as trend following. A third of all European Union and United States stock trades in 2006 were driven by automatic programs, or algorithms.

Algorithmic trading and HFT have been the subject of much public debate since the U. In practice this means that all program trades are entered with the aid of a computer. NYSE matched against the futures trade. Yet the impact of computer driven trading on stock market crashes is unclear and widely discussed in the academic community. Financial markets with fully electronic execution and similar electronic communication networks developed in the late 1980s and 1990s.

This increased market liquidity led to institutional traders splitting up orders according to computer algorithms so they could execute orders at a better average price. The trading that existed down the centuries has died. We have an electronic market today. As more electronic markets opened, other algorithmic trading strategies were introduced. These strategies are more easily implemented by computers, because machines can react more rapidly to temporary mispricing and examine prices from several markets simultaneously. This type of trading is what is driving the new demand for low latency proximity hosting and global exchange connectivity.

It is imperative to understand what latency is when putting together a strategy for electronic trading. Latency refers to the delay between the transmission of information from a source and the reception of the information at a destination. Pairs trading or pair trading is a long-short, ideally market-neutral strategy enabling traders to profit from transient discrepancies in relative value of close substitutes. In finance, delta-neutral describes a portfolio of related financial securities, in which the portfolio value remains unchanged due to small changes in the value of the underlying security. Two assets with identical cash flows do not trade at the same price.

Arbitrage is not simply the act of buying a product in one market and selling it in another for a higher price at some later time. The long and short transactions should ideally occur simultaneously to minimize the exposure to market risk, or the risk that prices may change on one market before both transactions are complete. In the simplest example, any good sold in one market should sell for the same price in another. Traders may, for example, find that the price of wheat is lower in agricultural regions than in cities, purchase the good, and transport it to another region to sell at a higher price. This type of price arbitrage is the most common, but this simple example ignores the cost of transport, storage, risk, and other factors.