ALGORITHMIC TRADING

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ALGO TRADING HISTORY

 



Algorithmic trading, also known as algo trading, is the use of computer programs to automate trading strategies based on predefined rules.

1970s – The Birth of Electronic Trading:

  • 1970s, stock markets relied on open outcry trading, where traders shouted orders on exchange floors.
  • In 1971, the NASDAQ (National Association of Securities Dealers Automated Quotations) became the first electronic stock exchange, allowing computerized trading.

1980s – Rise of Program Trading:

  • The New York Stock Exchange (NYSE) introduced program trading, which allowed institutions to execute large orders using computers.

1990s – High-Frequency Trading (HFT) Begins

  • As computing power improved, high-frequency trading (HFT) emerged.
  • Traders started using technical indicators, mathematical models, and automation to execute trades in milliseconds.
  • 1998: The U.S. SEC (Securities and Exchange Commission) approved electronic communication networks (ECNs), allowing direct electronic trading without a broker.

2000s – Algo Trading Dominates

  • By the early 2000s, algorithmic trading started dominating financial markets.
  • The 2008 financial crisis increased scrutiny on algo trading, as automated systems contributed to extreme market fluctuations.
  •  2010s – The Flash Crash & Regulations

  • May 6, 2010: The Flash Crash occurred, where the Dow Jones Industrial Average dropped nearly 1,000 points in minutes due to algorithmic trading errors.
  •  Governments introduced regulations like SEBI's rules in India and Dodd-Frank Act in the US to monitor algo trading.
  • AI (Artificial Intelligence) and ML (Machine Learning) started playing a big role in trading strategies.

2020s – AI, Machine Learning & Retail Algo Trading

  • Today, AI-powered algo trading is growing, using deep learning and big data analytics.
  • Retail traders now have access to Python-based algo trading, APIs (Zerodha, Upstox, etc.), and low-code platforms to automate strategies.

Conclusion:

  • Algo trading has come a long way from simple program trading in the 1980s to AI-driven, high-frequency trading today. With increasing computational power and data-driven strategies, algo trading will continue shaping financial markets in the future.

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