How does algorithmic trading work, and what are its potential drawbacks?
Answer Posted / Seema Gupta
Algorithmic trading (also known as automated trading or black-box trading) involves using AI algorithms to make high-speed trades based on market data. Potential advantages include increased speed, reduced human error, and constant monitoring of markets. However, potential drawbacks include increased risk due to rapid decision-making, the possibility of flash crashes, and limited flexibility to adapt to changing market conditions.
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