Black-Box Trading is also known as algorithmic trading, automated trading, quant trading, or robot trading. It involves the use of computer software to place orders based on mathematical algorithms. These algorithms typically use historical price data to look for correlations that are strong enough to justify trades. Multiple trades are made and high degrees of leverage are usually employed to take advantage of almost microscopic price discrepancies. Black-box trading is most used by hedge funds, but also used by mutual funds and pensions. The trades are typically executed in 1/100’s of a second, far fast than any human trader could execute them. Sometimes positions are held for only minutes.
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