Algorithmic Trading vs Manual Trading: Which Is Better?

Manual trading depends on human judgment and execution. Algorithm trading, on the other hand, uses automated, computer-based programs to execute trades quickly and precisely based on established criteria. The difference between algorithm trading vs manual trading is just beyond how they are executed. Discover the key differences between algorithm and manual trading and which is better for you.

What is Algorithmic Trading?

Algorithmic trading (also known a black-box trading, automated trading, or algo-trading) involves a computer program following a defined set of instructions (an algorithm) to place trades. Simply put, a computer program buys and sells financial securities without human intervention.

Depending on the complexity, algorithmic trades can happen within milliseconds or even faster. Institutional investors and investment banks mostly use algorithmic trading.

Advantages of Algorithmic Trading

Here are the key benefits of Algo trading you must know as an investor and trader:

• Speed and Efficiency: Computers can process information much faster than humans. They can also simultaneously process facts from several sources. As a result, high-frequency traders (HFTs) can act on new information as it becomes available.
• Elimination of Human Error: Automating systems eliminate the possibilities of human error, such as fatigue, tiredness, sickness, etc.
• Backtesting and Optimisation: Algorithms can be tested on historical data to see how the algorithm performs before running it on actual markets.

What is Manual Trading?

As the name implies, manual trading involves humans buying and selling securities. Traders analyze market trends, read financial reports, and make decisions based on their judgment and experience. It is still highly popular among retail as well as long-term investors who have a preference for a more hands-on approach.

If you are participating in manual and online equity trading in India, it is important to choose the right stock broker.

Advantages of Manual Trading

Here are the main benefits of manual trading you must know:

• Flexibility: Unlike algorithms, human traders can quickly adapt to changing market conditions and thus modify strategies on a needs basis.
• Emotional Insight: Some traders feel that emotions if kept in check, can work to their advantage. Experienced traders can use their instincts and market knowledge to make winning transactions.
• No Need for Advanced Technology: Manual trading can be done without needing specialized software or advanced coding, which means it’s available to all traders.

Which is Better between Manual and Algo Trading?

The decision to choose between algorithmic or manual trading depends on what you are trying to achieve through your trades. You must also consider how much risk you are willing to take and your level of expertise in technology.

Suppose you want to perform online equity trading in India. In that case, algorithmic trading surely has an edge as it is faster and can monitor multiple stocks simultaneously. Still, manual trading suits investors who prefer long-term investment and like the personalized investment approach.

Whatever your trading method, it’s essential to know the trading infrastructure of online equity trading in India. One thing that most traders miss is the difference between NSDL and CDSL, India’s two depositories.

Conclusion

There’s no easy one-size-fits-all answer in the debate on Algorithmic trading vs manual trading. Algorithmic trading suits traders who like fast-paced action and automation, whereas manual trading is suitable for a more laid-back approach. Whichever you choose, do not get ahead of yourself. First, you need to understand the basics of the trading system and the difference between NSDL and CDSL.