Analyzing the impact of algorithmic trading on stock market behavior: A comprehensive review
1 Barclays Bank, United Kingdom.
2 Independent Researcher, Lagos, Nigeria.
3 City Power, Johannesburg, South Africa.
Review
World Journal of Advanced Engineering Technology and Sciences, 2024, 11(02), 437–453.
Article DOI: 10.30574/wjaets.2024.11.2.0136
Publication history:
Received on 01 March 2024; revised on 11 April 2024; accepted on 13 April 2024
Abstract:
In the ever-evolving tapestry of financial markets, algorithmic trading has emerged as a transformative force, redefining the boundaries of trading strategies and market dynamics. This paper delves into the intricate world of algorithmic trading, with the aim of elucidating its multifaceted impacts on financial markets, from liquidity and volatility to regulatory frameworks and technological advancements. Through a meticulous thematic analysis, grounded in a carefully curated selection of peer-reviewed literature, this study navigates the complex interplay between algorithmic trading strategies and market behavior, offering a panoramic view of its evolutionary trajectory and current landscape.
The scope of this paper encompasses a comprehensive examination of algorithmic trading's principles, strategies, and its dualistic role in enhancing market efficiency while posing potential challenges to market stability. The findings reveal that algorithmic trading, characterized by its high-speed and high-volume trading capabilities, significantly influences market liquidity and volatility, often with mixed outcomes. These insights underscore the critical need for adaptive regulatory measures that can keep pace with technological advancements, ensuring market integrity and protecting investors.
Conclusively, the study advocates for a collaborative approach among market participants, regulators, and policymakers to harness the benefits of algorithmic trading while mitigating its risks. Strategic recommendations emphasize the importance of embracing technological innovation, fostering ethical trading practices, and implementing agile regulatory frameworks. In the grand narrative of financial markets, algorithmic trading stands as both a beacon of progress and a domain requiring vigilant oversight, heralding a new chapter in the annals of market evolution.
Keywords:
Algorithmic Trading; Financial Markets; Market Liquidity; Market Volatility; Regulatory Frameworks; Technological Advancements.
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Copyright © 2024 Author(s) retain the copyright of this article. This article is published under the terms of the Creative Commons Attribution Liscense 4.0