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Trading Algorithms: Areas of Concern

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Trading Algorithms: Areas of Concern Lack of Visibility We know what a specific algorithm is supposed to do, measure its pre-trade analytics and see how the post-trade results match up to that expectation. But if the trader didn’t select the most optimal algorithm for that trade little can be done. This problem is caused by a lack of visibility and transparency into the algorithm while it is executing orders. Algorithms Acting on Other Algorithms If fund managers trading pattern is spotted and regular; tracked with the use of algorithms, then these algorithms are liable to be ‘reverse engineered’. This implies that their buy and sell orders are pre-empted and used to the maximum effect by their competitors. Here, algorithms are acting on other algorithms. Which Algorithm to Use for Trading? With brokers offering many algorithmic strategies , one concern is that buy-side institutions lack the tools to understand which algorithm to use for a particular stock. The lack of a