The Difference between HFT and Algorithmic Trading

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Algorithmic, high-frequency, algo-, or automated trading are terms that often show up in trading-related articles. It’s easy to get confused and find yourself lost in all the definitions. This happens because both — the technological and financial landscapes have many nuances, and slight differences in operations create new terms.

Moreover, in some cases, certain phrases denmark mobile database end up being used interchangeably and adding to the disorientation. So what is algorithmic trading and does it differ from HFT? To help you better understand this area of finance, we’re going to discuss each trading method in more detail.

The Difference between HFT and Algorithmic Trading Algorithmic Trading
Algorithm trading is also known as algo-trading or black-box trading. It’s a trading solution that uses coded sets of algorithms and execution strategies to submit orders to a market or exchange automatically after a technical analysis. So how do trading algorithms work?

Algorithm trading involves the use of predefined sets of variables such as price, time, and volume by pre-programmed trading instructions. These instructions, known as an execution algorithm, send child orders (small slices) to make up for larger orders that are too big to send at once.

Slicing into small orders helps attain good pricing within a specified time. Reduction in the size of orders is good for an aggressive market. Thus, making algorithmic trading widely applicable to trading with high market volumes such as mutual funds, investment banks, hedge funds, etc.

The main objective of algo-trading is not just to profit by trading but to save costs, minimize market impact, and the execution risk of a trading order. With algorithmic trading software, traders don’t need to watch stocks or send slices manually.