AI Trading vs. Algo-Trading: Decoding the Difference
Both are designed to eliminate the emotional biases that often influence human decision-making, but they operate using different methodologies.
In today's dynamic financial markets, two cutting-edge technologies—AI trading and algorithmic (algo) trading—have reshaped how trading is executed. Both are designed to eliminate the emotional biases that often influence human decision-making, but they operate using different methodologies. This article breaks down the distinctions between AI trading and algo-trading, highlighting their advantages, limitations, and real-world applications.
What is Algo-Trading?
Algorithmic trading (or algo-trading) refers to the use of predefined sets of rules or instructions coded into a computer system to automatically execute trades. These rules are typically based on variables such as time, price, and volume. Algo-trading has been in use since the 1970s, starting with equity markets and expanding into various asset classes, including forex, commodities, and cryptocurrencies.
Advantages of Algo-Trading:
Speed and Efficiency: Algo-trading enables lightning-fast trade execution, processing large numbers…