$CIDM A lesson on ALGO trading: The most common algos can be classified into two categories: “Liquidity taking” and “Liquidity providing.” A liquidity taking algo is usually designed to help institutional traders order large quantities of stock without having adverse effects on the price. The order follows a “simple logical particpation” strategy that is designed to look like a bunch of smaller traders. They’ll use a combination of limit and market orders and even pick up odd lots. The transaction costs are minimal on these desks. A liquidity providing algo operates as a market maker. They’ll post automated bids and asks at the current price, taking orders at market on both sides of the trade. Even if the securities didn't have a bid ask spread, these algos would still make money on most exchanges because of the kickbacks they get for providing the liquidity. Cont...
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