Futures, FX, Trading Education, Trading Tools

What is the difference between AI trading and algo-trading?

AI-trading vs algo-trading

Both AI trading and algo-trading are technologies used to perform trades at much faster rates than possible by humans. Furthermore, both of these techniques heavily reduce any emotional factors that would influence trading decisions, as they are controlled by computers.

 Algo-trading refers to implementing an algorithm into a computer that is run to place trades. For instance, algorithmic trading is telling the computer the set of trading rules or instructions to follow, and then having the computer do the trading for you. Typically, algorithmic trading accounts for a variety of variables including time, price, and quantity. Algorithmic trading has been a popular trading technique since the 1970s since there are many benefits to this method.

Algorithmic trading benefits companies as it can process orders at a much faster speed than possible by humans. In addition, trades can be set to be executed at the best prices with lowered transaction costs. There is also a significantly reduced risk of manual and other human errors when using algo-trading.

However, due to technological advancements in artificial intelligence, AI trading has seen an increase in recent years. AI trading refers to using artificial intelligence to predict how the market will react under different circumstances. This is done by researching and analyzing past and current market conditions and trading patterns to then predict what will happen in the future. 

The main difference between algo-trading and AI trading is that with algo-trading, the humans set the conditions, whether they be time, price, quantity, or any other factors. On the other hand, for AI trading, artificial intelligence is used to analyze all the different conditions at a faster rate, and then set the conditions to be the most productive. Artificial intelligence is continuously learning and does not need the same extent of human interaction as algo-trading. Algorithmic trading is much more reliant on humans as they have to manually set the conditions of the trades.

What used to work may not always work, which is why AI’s constant learning is extremely beneficial in predicting the future markets. AI trading is dynamic and innovative. AI trading is the future.

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