As we have seen, electronic trading is the process of trading over the internet rather than over-the-counter. Since these trades happen electronically, however, it stands to reason that there is software out there that can make these processes easier.
Trading Automation is such a type of software, and the easiest way to understand how it works is by looking at another name it goes by, ‘algorithmic trading’. Indeed, trading automation is basically the use of specific algorithms to automatically buy and sell assets, as well as to submit orders to markets or exchanges (4).
This type of software is also called ‘systematic trading’ and ‘robot trading’, but either way it allows for the creation of an ‘Automated Trading System (ATS)’. Such a system allows for huge volumes of data to be processed, as well as larger and more diverse amounts of assets to be traded online at a faster speed. All this can even happen with minimal human intervention required.
This way of trading has now become the norm both for large and small trades. In fact, by 2018, the Goldman Sachs Algorithm was famously handling each and every trade of below $2 million (5). In March 2020, meanwhile, a JPMorgan survey showed that more than 60% of trades for ticket sizes exceeding $10 million were done via algorithmic software (6), too.
All this means that the Algorithmic Trading Market is growing by the day in each region of the world. Indeed, it is estimated that the market of algorithmic trading infrastructure will be worth some $18.8 billion by 2024 (7).
Nevertheless, to those out there who are not well seasoned in the concept of trading automation, it may seem like a crazy idea to let software handle such vast amounts of money. Yet, once you understand how it works, it becomes clearer why it actually makes a lot of sense, both financially and logically.