Block 05 · 05
Algorithmic Trading
How an algorithm keeps capital at work while you're busy, and how institutional systems like Aladdin and Bloomberg Terminal differ from ordinary bots.
A hypothetical strategy. A bot does not guess the market: it checks conditions defined in advance and acts only when they are met.
Market Data
At least one condition is not met — the bot does not act and waits.
A bot does not replace a specialist
- 01
Specialist
- 02
Analyses the market
- 03
Defines the strategy
- 04
Sets the rules
- 05
Configures the bot
- 06
The bot automatically executes the defined strategy
Automation on its own is not an advantage
- A bot does not create profit automatically and is not a magic solution.
- The result depends on the chosen strategy, the parameters, market conditions, configuration and the specialist's oversight.
- When a specialist works the same position manually, they can take in extra context that cannot be fully reduced to predefined rules.
A bot automates the execution of a strategy. The specialist defines the strategy and can account for market context that cannot be fully reduced to predefined rules.
In plain words
Watch how this plays out by the clock. On Wednesday at 10:30:00, the EIA releases oil inventory data. A person at a terminal reads the number, compares it with the forecast, and assesses the reaction — that takes anywhere from a few seconds to a minute. An algorithm receives the same data through a direct feed, compares it against its built-in forecast, and executes the order in 40 milliseconds, simultaneously setting follow-up levels. By the time a person is still forming a decision, the position is already open at the planned price. The rules, though, were set by a person — in advance, calmly. The algorithm simply executed them precisely at the right moment.
means executing a predefined strategy through software. A person sets the rules; an algorithm carries them out.
What the algorithm does. It monitors the market continuously, checks entry conditions against set parameters, opens a position the moment they're met, and manages it according to preset levels. The reaction time is measured in milliseconds.
Why this works better than manual execution. An algorithm never misses an event because the workday ended. It executes the plan the same way the first time and the hundredth time. It can hold and monitor several instruments at once.
How this works at the institutional level. The largest US asset managers use such systems to manage portfolios: BlackRock's platform serves trillions of dollars in assets, and s provide a professional data feed. A significant share of US market volume runs through algorithmic systems.
Access through a firm. Infrastructure at this level is connected on the firm's side: you gain access to professional algorithms and data feeds, and the strategy is configured for your account together with an advisor.
Common beginner mistakes
- Assuming an algorithm replaces a strategy — a person still sets the rules
- Running a system without predefined follow-up levels
- Configuring parameters without tying them to account size
- Leaving settings unchanged when market conditions shift