Algotrading and Stock Market

On the stock market, algorithmic trading evolves the fastest. Still, it is much more widespread among big players like hedge funds and investment banks than among individual traders. This is understandable, in our days of rapidly developing technologies, competition is also rapidly growing in this field. And in order to survive and earn a lot of money you need a lot of money to provide resources: attracting specialists and creating infrastructure for inventing and implementing more efficient algorithms.
 
On the stock market, algorithm trading has got a certain stratification into the following types of its applications:
 
Algorithms based on technical analysis.
Here, robots use technical analysis tools to monitor market movements and look for patterns and inefficiencies to make a profit on them.

Pair trading.
Two instruments are chosen here, one of which is a "cheater". That is, first there are changes on the guide, and then the second one is pulled up after it. Such inefficiencies disappear most quickly, being leveled by robots. But still, sometimes they can be found.

Basket trading.
This variant takes a bunch of instruments, which have a rather high, but not absolute correlation with each other. If some instrument is taken out of the group, it is expected that it will return to it sooner or later. And these expectations are traded by hft systems of this kind.

Market Making.
The task of the market makers of a particular trading instrument is to provide liquidity. So that at any moment a private trader or hedge fund can buy or sell it. And the market maker must do so even if he suffers a loss. But for such work the exchange, of course, will reward him. And to perform this function quickly and efficiently, market makers use special algorithms. And at the same time, both the algorithms and the rules of the exchange allow making profit, if it does not interfere with liquidity.

Front running.
These strategies track the emergence of large volumes, monitor the data in the glass, order ribbon and from the price chart. By identifying these volumes, they assess where the price will move when they are executed, how the price will behave when it comes to these volumes next time, which large players are likely to defend.

Arbitrage.
There are, for example, two different types of shares of the same company, which change synchronously, with 100% correlation. Or the same share is taken, but on different exchanges. On some stock exchange it will rise or fall a little earlier than on the second one. Seeing what happens on the first, you can open deals on the second. Due to fast speeds, such inefficiencies are becoming more and more ineffective, but still large players with billions of budgets can still squeeze out their profits here.

Volatility trading.
Here, the best minds analyze different instruments, making predictions about which of them may increase the volatility. They put their analysis mechanisms into robots, and they buy options for these instruments at the right moment.