Algo or Manual Trading Which one is better for the Option Market?

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Algo trading is becoming more popular with the introduction of more improved versions of the software making the complicated trading strategies easier to implement as per the market conditions. Manual trading is already in practice among most of the traders allowing them to make trade decisions as on their past experiences and market situation.

Trading in the cash market is easier and less complicated compared to the derivatives market, especially in options trading. However, Algo is making options trading not only faster but also more interesting and more profitable with the right action as per the changing market conditions.

However, the question still lies here, Algo or manual trading which one is better, especially for option trading? Both have their own pros and cons, and traders choose the mode of trading as per their ease and affordability. If you are interested in Algo trading, you need to understand the basic differences between them and which one is better for the options market.

Algo Trading vs Manual Trading

The main motive of algo trading and manual trading is to earn the maximum profits from the option market but their mechanism in terms of order placement and execution are different from each other. Hence, you need to understand how they work and make decisions in different market situations, especially in options rapidly changing market conditions.

What is Manual Trading?

As you know it is one of the common styles of trading done by humans analysing the stocks to buy or sell through a trading platform. All the processes like performing the fundamental or technical analysis, understanding the market trend, finding out the best suitable stock, and best points to buy and sell the stocks with the right trading strategy.

In manual trading, you need extra time and put your efforts into performing all the above-mentioned tasks which is a tedious process. Because you have to consider various factors that can affect the stock market and the price of the individual underlying security. You need to consider economic factors, identify the sector trend and analyse the financials of the company. It is a time-consuming process compared to Algo but works in taking well-informed decisions.

Algo or Algorithmic Trading

Algo trading is an automated trading system performed by the computer application that has been developed with certain set of rules and regulations using machine learning algorithms and programming to train the Algo to analyse the various market conditions and consider all types of other factors that can affect the price of an underlying security and then place the order.

The Algo are trained to operate in different types of market conditions and use the right trading strategy as per the market conditions. Algo can perform at a very fast speed and can generate a huge volume of trade with the ability to react quickly. However, there is an option for the traders to manually adjust or tune the trading strategy in Algo as per their risk profile.

Algo or Manual Trading: Which is better for Option Trading?

Options trading are one of the complex forms of trading in which market conditions keep changing due to volatility and other factors like option Greeks making the option premium highly sensitive towards the price change. But both manual trading and Algo trading can trade in various market conditions using their own resources and know-how to analyse the situation.

However, compared to humans, Algo can perform at a much faster speed and can do multiple transactions at the same time with the capability to generate a huge volume of trades. Manual traders can make more cognitive decisions as per their past trading experiences to pick the right trading strategy or adjust their positions as per the market conditions.

But the question here is in option trading the market keeps fluctuating and can change its trend rapidly. Which trading style, Algo or manual trading is more capable of taking the right decisions when the market suddenly changes with unexpected moves?

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