What it is
Algorithmic trading, often called algo-trading, involves using computer algorithms to automatically execute buy and sell orders in financial markets. These algorithms are programmed with specific rules, such as price, volume, and timing, which trigger trades without human intervention. The goal is to optimize trade execution, minimize costs, and capitalize on market inefficiencies faster than manual trading. It is used across various asset classes, including stocks, bonds, currencies, and commodities.
Algorithmic trading is a dominant force in modern financial markets, accounting for a significant portion of daily trading volume on major exchanges. Its prevalence means market movements can be influenced by automated strategies, leading to rapid price changes or flash crashes. Retail investors encounter its impact through market liquidity and volatility. Following stories about algo-trading requires understanding how automated systems can amplify trends or reverse them based on their programmed logic.
Why it matters
Understanding algorithmic trading helps retail investors comprehend market dynamics, especially rapid price shifts and liquidity changes driven by automated systems.
Reviewed under editorial standardsUpdated September 26, 2026Not investment advice