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Using a computer program to place trades automatically by following a fixed set of rules, instead of a human deciding and clicking each time.
Why It Matters
An algorithm is just a recipe: 'if these conditions are true, place this order.' Writing the rules down and letting software follow them removes hesitation and emotion from the moment of execution, and lets a system watch far more markets than a person could. It does not remove risk — a flawed rule simply makes mistakes faster and around the clock. The majority of share volume on major exchanges is now placed by algorithms of some kind, from giant institutions to hobbyists running a script.
Key Points
- A rule-based program that decides and places orders without a human clicking each trade
- Ranges from a simple hobby script to institutional systems trading millions of times a day
- Automation removes emotion from execution, but a bad rule just loses money faster
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What Is Algorithmic Trading?
Get a complete explanation with examples, key takeaways, and a quiz to test your knowledge.
Related Terms
Common Questions
Using a computer program to place trades automatically by following a fixed set of rules, instead of a human deciding and clicking each time. An algorithm is just a recipe: 'if these conditions are true, place this order.' Writing the rules down and letting software follow them removes hesitation and emotion from the moment of execution, and lets a system watch far more markets than a person could.
An algorithm is just a recipe: 'if these conditions are true, place this order.' Writing the rules down and letting software follow them removes hesitation and emotion from the moment of execution, and lets a system watch far more markets than a person could. It does not remove risk — a flawed rule simply makes mistakes faster and around the clock. The majority of share volume on major exchanges is now placed by algorithms of some kind, from giant institutions to hobbyists running a script.
A rule-based program that decides and places orders without a human clicking each trade
Ranges from a simple hobby script to institutional systems trading millions of times a day
Automation removes emotion from execution, but a bad rule just loses money faster