Algorithmic Trading Market Outlook: Opportunities, Challenges, and Future Trends

According to a recent report published by Allied Market Research, titled, the global algorithmic trading market size was valued at $12,143 million in 2020, and is projected to reach $31,494 million by 2028, registering a CAGR of 12.7% from 2021 to 2028.

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Algorithmic trading, also known as automated trading, involves the use of computer programs to execute specific instructions or rules for buying or selling assets based on fluctuating market data. These predefined instructions can be related to timing, quantity, price, or mathematical models. This approach provides various advantages for market participants, including the execution of trades at optimal prices, simultaneous automated checks on multiple market conditions, precise and instant timing of trades, and reduced transaction costs resulting from the absence of human intervention.

A computer program is fed with an algorithm designed to automatically initiate trades when specified conditions are met. The algorithm typically relies on various input parameters such as price, quantity, timing, or other metrics. Overall, algorithmic trading enhances efficiency and effectiveness in the financial markets by leveraging automation to navigate complex trading scenarios.

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The global algorithmic trading market is experiencing significant growth, primarily propelled by factors such as the increasing demand for reliable and swift order execution, favorable government regulations, and the necessity for effective market surveillance. The desire to reduce transaction costs is also boosting the adoption of algorithmic trading. However, the market growth may face challenges due to insufficient risk valuation capabilities. On a positive note, the emergence of AI and algorithms in financial services is expected to offer lucrative growth opportunities. Additionally, the rising demand for cloud-based solutions is seen as an opportunistic factor.

In 2020, the solution segment demonstrated the highest growth in the algorithmic trading market and is poised to maintain its dominance in the coming years. Algorithmic trading solutions offer benefits such as reduced transaction costs and precise trade order placement without human intervention. Market players are introducing advanced solutions to cater to diverse customer needs. For example, BNP Paribas upgraded its FX trading platform in September 2019, incorporating real-time analytics and interactive algorithms. The services segment, on the other hand, is expected to witness the highest growth, driven by widespread adoption of professional services among end users for ensuring the effective functioning of algorithmic trading solutions.

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Regarding types, the stock markets segment dominated the global algorithmic trading market in 2020 and is anticipated to continue its dominance. This is attributed to the increasing adoption of algorithmic trading solutions by investors for stock trading, operating through computer programs without requiring human intervention. Conversely, the cryptocurrency segment is expected to experience the highest growth, fueled by the growing interest of trading professionals in cryptocurrency trading.

Despite the challenges posed by the COVID-19 pandemic, the algorithmic trading industry has seen minimal impact, with adoption increasing in response to unprecedented circumstances. Institutions like the Reserve Bank of Australia have noted a shift towards electronic trading during the pandemic. Market players have also introduced innovative algorithmic trading products to better serve increased trading volumes. For instance, in March 2021, Cowen launched an algorithmic trading solution to assist institutional clients in navigating market dynamics resulting from elevated retail trading volumes. The current projections for 2028 suggest growth surpassing pre-COVID-19 estimates.

Some of the key algorithmic trading industry players profiled in the report include 63MOONS, Virtu Financial, Software AG, Refinitiv Ltd. MetaQuotes Software Corp. Symphony Fintech Solutions Pvt Ltd. Argo SE, Tata Consultancy Services, Algo Trader AG, and Tethys. This study includes algorithmic trading market trends, algorithmic trading market analysis, and future estimations to determine the imminent investment pockets.

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