Algorithmic trading is a method of executing a large order (too large to fill all at once) using automated pre-programmed trading instructions accounting for variables such as time, price, and volume
[1] to send small slices of the order (child orders) out to the market over time. They were developed so that traders do not need to constantly watch a stock and repeatedly send those slices out manually. Popular "algos" include Percentage of Volume, Pegged, VWAP, TWAP, Implementation Shortfall, Target Close.
Algorithmic trading is not an attempt to make a trading profit. It is simply a way to minimise the cost,
market impact and
risk in execution of an order.
[2][3] It is widely used by
investment banks,
pension funds,
mutual funds, and
hedge funds because these
institutional traders need to execute large orders in markets that cannot support all of the size at once.
