What is Algorithmic Trading?
Algorithmic Trading
Forex Trading Glossary
Quick Answer: Algorithmic trading uses automated rules or code to execute trades at high speed, enforcing discipline and allowing strategies to run around the clock.
What is Algorithmic Trading?
Algorithmic trading uses predefined rules or code to execute trades automatically. Strategies range from simple moving-average crossovers to machine-learning models ingesting real-time macro data. Automation enforces discipline, reacts faster than humans, and keeps strategies running 24/5 in forex markets.
Why Traders Automate
- Consistency: Robots execute the plan without emotional interference.
- Speed: Algorithms can react to ticks in milliseconds—critical around high-volatility releases.
- Scalability: Run multiple strategies across pairs and time zones simultaneously.
- Backtesting: Code can be stress-tested across decades of historical data.
Automation Still Needs Humans
Monitor execution metrics like latency, slippage, and rejected orders. Keep a manual override ready for events such as flash crashes or unexpected broker outages.
Building a Forex Algo
- Define the edge: Start with a clear hypothesis (trend following, mean reversion, carry).
- Translate to code: Use platforms such as MT4/MT5 Expert Advisors, cTrader cBots, or Python APIs.
- Validate properly: Separate in-sample and out-of-sample data to avoid overfitting.
- Deploy gradually: Begin with small live capital until performance matches backtests.
Related Terms
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