Algorithmic trading

The placing of a buy or sell order of a defined quantity of a financial instrument into a quantitative model that automatically generates the timing of orders and the size of orders based on goals specified by the parameters and constraints of the algorithm. The strict rules built into the model attempt to determine the optimal time for an order to be placed that will cause the least amount of impact on a price of the financial instrument.

Algorithmic trading is most commonly used by large institutional investors as a result of the large amount of shares or bonds they purchase daily. Complex algorithms allow these investors to obtain the best possible price without significantly affecting the price and increasing purchasing costs.