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Algorithmic Trading Concepts
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Limit Order Book
A record of all the buy and sell orders for a specific security arranged by price level. Algorithmic traders analyze this data to make better trading decisions and predict short-term market movements.
Algorithmic Trading Strategies
These are predefined sets of rules for automatic trade execution, which can include strategies such as momentum, mean reversion, market making, arbitrage, and sentiment-based trading, among others.
High-Frequency Trading (HFT)
HFT is a form of algorithmic trading that involves executing thousands or millions of trades within seconds or fractions of a second, utilizing advanced algorithmic strategies to exploit small price discrepancies and market inefficiencies.
Market Making
Market making is a strategy used by traders to provide liquidity by simultaneously quoting bid and ask prices for a particular security, aiming to profit from the spread between the buy and sell price.
Smart Order Routing (SOR)
Smart Order Routing is an automated online trading method used to route orders, seeking the best possible price across multiple trading venues, and is crucial in fragmented markets.
Quantitative Analysis
The use of mathematical and statistical models in trading to determine trading opportunities, define risk, and manage financial investments. Quants analyze market data and trends using complex algorithms.
Statistical Arbitrage
This strategy exploits statistical mispricing or correlation anomalies between different assets by simultaneously buying and selling related securities to achieve a risk-adjusted profit.
Backtesting
Backtesting is the process of testing a trading strategy using historical data to assess its viability before risking any actual capital. It is an essential part of developing an algorithmic trading system.
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