What is algorithmic trading?
Algorithmic trading is a method of trading where computer programs make decisions based on data inputted by humans. In contrast, human traders decide what to do with their own money based on their gut feelings. This is called discretionary trading.
Merriam Webster Online
Definition of algorithm: a procedure for solving a mathematical problem (as of finding the greatest common divisor) in a finite number of steps that frequently involves repetition of an operation
broadly : a step-by-step procedure for solving a problem or accomplishing some end.
Algorithmic trading is a method of executing orders using automated pre-programmed trading instructions accounting for variables such as time, price, and volume. This type of trading attempts to leverage the speed and computational resources of computers relative to human traders. In the twenty-first century, algorithmic trading has been gaining traction with both retail and institutional traders. It is widely used by investment banks, pension funds, mutual funds, and hedge funds that may need to spread out the execution of a larger order or perform trades too fast for human traders to react to. A study in 2019 showed that around 92% of trading in the Forex market was performed by trading algorithms rather than humans.