How Algorithmic Trading is Reshaping Markets – Insights from Octa Broker

The algorithmic trading market size is projected to grow from USD 2.53 billion in 2025 to USD 4.06 billion by 2032, at a CAGR of 7.0% during the forecast period. Another research indicates that the market might grow from USD 19.95 billion in 2024 to USD 22.03 billion in 2025, with a CAGR of 10.4%.

Although the presented figures differ due to various methodologies, they indicate significant market growth, which is far more important than its volume. Relatively rapid market development emphasises rising demand for algo trading tools. They are now available not only to institutional investors but also to retail traders. Some are provided as additional software, while others are built-in features on trading platforms. Octa Broker, a broker with globally recognised licences, explains the pros and cons of algo trading.

4 Algo Trading Pros

Traditional manual trading requires a lot of time, attention, and high concentration to avoid missing potential profits and implement decent risk management. Automated trading bots eliminate the majority of these factors with their advantages:

1. Speed and Efficiency. Probably the most significant advantage of a trading algorithm is that it can execute a trade in milliseconds, something far beyond human ability. High-frequency trading, which is a subdivision of algorithmic trading, allows such small price movements to be exploited by an incredibly high number of transactions taking place at a microsecond level, making it a dominant factor in markets.
2. Trading Multiple Markets Simultaneously. Algo trading systems can process data of enormous volume while trading across different markets and asset classes. Market exposure and diversification are enhanced, allowing the trader to optimise returns without tracking a climbing wall of different markets in real-time.
3. No Emotional Bias. Human traders experience emotions like fear and greed that sometimes drive them to act irrationally or impulsively. With algo trading, people do not carry out trades on their own; they pay a trading program to do it for them with pre-programmed instructions solely based on data. This minimises costly mistakes and eliminates irrational behaviours in the market.
4. 24/7 Market Participation. Algorithmic systems do not rest, so trading strategies are executed across multiple markets in different time zones.

4 Limitations of Algo Trading

Despite vivid pros, algo trading should be addressed cautiously, with its limitations in mind:

1. Complexity in Development and Customisation. Designing a robust algorithmic trading system requires advanced programming skills and deep market knowledge. Many traders struggle to develop and fine-tune algorithms that can effectively navigate complex market conditions, making algo trading largely dominated by institutional investors and hedge funds.
2. Technical Failures and System Errors. Algorithm-based trading faces problems like technical glitches, server downtimes, and coding errors. A tiny defect in the code can lead to catastrophic losses. One of the most famous examples is the 2010 ‘Flash Crash‘, when algorithms triggered a fast sell-off of the markets to see $1 trillion worth being lost in a matter of minutes.
3. Limited Adaptability to Market Changes. Algorithms are designed to work with historical data and fixed strategies; hence, they do not act reasonably and cannot adapt to sudden changes in the market. Unforeseen events, such as geopolitical events, decisions from central banks, or surprises from macroeconomic perspectives, can disrupt trading algorithms.
4. The Need for Constant Monitoring. Contrary to the idea that algo trading is ‘set-and-forget’, it requires continuous oversight. Traders must regularly update and optimise their algorithms to reflect evolving market trends and ensure their models remain profitable.

Practical Recommendations to Get the Most Out of Algo Trading

When used sustainably, algorithm trading can become an efficient instrument for enhancing trading. Here are five recommendations for traders.

1. Start with Backtesting

Before running the algorithm in live markets, first backtest the algorithm on historical data to validate its performance in different conditions. This way, you can identify potential weaknesses and optimise your strategy before committing capital to a trade.

2. Implement Risk Management Measures

Using stop-loss mechanisms and position-sizing rules within an algo trading strategy can help mitigate potential losses. Diversifying across multiple strategies also reduces reliance on a single trading model.

3. Keep Systems Updated

Market conditions change, and algorithms must be adjusted accordingly. Regular performance evaluations and updates ensure the trading system remains aligned with current trends.

4. Understand Regulatory Implications

Different markets have varying regulations regarding algorithmic trading. For example, regulators like ESMA in Europe impose strict rules on automated trading to prevent market manipulation and excessive volatility.

5. Use Algorithmic Trading as a Tool

Despite its advantages, algorithmic trading should complement, not replace, a trader’s overall strategy. Combining human intuition with automated precision often leads to the best outcomes.

Conclusion

Algorithmic trading has transformed financial markets so that it gives unmatched speeds and efficiencies in executing strategies. Yet, it’s not without risk: there are many limitations, such as technical failure, market volatility, and regulation. As Kar Yong Ang, a financial market analyst at Octa Broker, puts it: ‘Traders who use algo trading as part of their strategies should do so with full understanding of both the possibilities and pitfalls. Market conditions evolve, and traders should employ tools that develop with the market and industry trends to ensure required precision’.

While algo trading provides enormous benefits, it works best when combined with traditional risk management techniques and human oversight. Understanding the benefits and limitations will help you harness the strength of automation while staying competitive in a progressive market.

Disclaimer: Trading involves risks and may not be suitable for all investors. Use your expertise wisely and evaluate all associated risks before making an investment decision.

Octa is an international broker that has been providing online trading services worldwide since 2011. It offers commission-free access to financial markets and various services used by clients from 180 countries who have opened more than 52 million trading accounts. To help its clients reach their investment goals, Octa offers free educational webinars, articles, and analytical tools.

The company is involved in a comprehensive network of charitable and humanitarian initiatives, including the improvement of educational infrastructure and short-notice relief projects supporting local communities.

Since its foundation, Octa has won more than 100 awards, including the ‘Most Reliable Broker Global 2024’ award from Global Forex Awards and the ‘Best Mobile Trading Platform 2024’ award from Global Brand Magazine.