Question

Q3. Consider the following statements about Algorithmic Trading:

1. Algorithmic Trading is also known as Black Box Trading.

2. It is a trading system that utilizes advanced and complex mathematical models and formulas to make high-speed decisions and transactions in the financial markets.

Which of the statements are correct?

• A. a) 1 only
• B. b) 2 only
• C. c) Both 1 and 2
• D. d) None of the above

Answer 1

The correct option is C

c) Both 1 and 2

Algorithmic Trading/Algo Trading /Black Box Trading

• It is a trading system that utilizes advanced and complex mathematical models and formulas to make high-speed decisions and transactions in the financial markets.
• Algorithmic trading involves the use of fast computer programs and complex algorithms to create and determine trading strategies for optimal returns.
• Algorithmic trading is not an attempt to make a trading profit. It is simply a way to minimize the cost, market impact and risk in execution of an order
• It is widely used by investment banks, pension funds, mutual funds, and hedge funds because these institutional traders need to execute large orders in markets that cannot support all of the size at once.