Algorithmic Trading


DEFINITION of 'Algorithmic Trading'

A trading system that utilizes very advanced mathematical models for making transaction decisions in the financial markets. The strict rules built into the model attempt to determine the optimal time for an order to be placed that will cause the least amount of impact on a stock's price. Large blocks of shares are usually purchased by dividing the large share block into smaller lots and allowing the complex algorithms to decide when the smaller blocks are to be purchased.

BREAKING DOWN 'Algorithmic Trading'

The use of algorithmic trading is most commonly used by large institutional investors due to the large amount of shares they purchase everyday. Complex algorithms allow these investors to obtain the best possible price without significantly affecting the stock's price and increasing purchasing costs.

  1. Quantitative Trading

    Trading strategies based on quantitative analysis which rely ...
  2. Institutional Investor

    A non-bank person or organization that trades securities in large ...
  3. Block Trade

    An order or trade submitted for sale or purchase of a large quantity ...
  4. Iceberg Order

    A large single order that has been divided into smaller lots, ...
  5. Lot

    In general, any group of goods or services making up a transaction. ...
  6. Mutual Fund

    An investment vehicle that is made up of a pool of funds collected ...
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