The stock market is dangerous for those who do not understand it but nowadays, there is no need to understand it to make money. The rise of the digital age and artificial intelligence AI has brought new ways of trading in the stock market called black-box trading or algorithmic trading.
A trader can trade efficiently by using the latest technology such as black box
What is Black Box?
Humans are prone to error but technology is not. Therefore, everyone is dependent on one simple word i.e. technology. No doubt, the directives of the 20th century cannot be implemented these days without the use of technology as it has changed the decorum of society entirely. One such example of evolution and innovative technology is the conception of the black box stocks trading platform.
Black box is the idea of Pat McGowan to popularize and monetize their content in a global community. Black box is a publicly-traded company of creators and innovators led by CEO Gust Kepler. Black box provides a platform to traders and content creators alike. Black Box Stocks, Inc is listed on the OTC Markets under the ticker BLBX. It provides global insight and context into the trades of their users and community. This specific alerts feature of black box technology has many significant aspects in the stock market.
What is black box trading?
The sole objective of any trader is to make a profit. Traders implement numeral strategies to win the market. One such strategy in the market is a black box. Black box is an automatic method to engage the market. It uses fixed rules to generate buy and sell signals. This application is also referred to as an algorithmic system. The Black box also employs big data analytics and thus also incorporates high-frequency trading (HFT). As the technology of black box has evolved it became available to common masses. No matter if one is a company or not, the small retailer also has many options at their disposal.
The inner workings of black-box trading
The working of black-box trading is entirely a secret process. Trading rules and guidelines are hidden within intricate programming code. These codes are integrated into the trading software and thus plugged into the market. However, the function of the black box system based on three levels;
Signal generation: On the basis of different analytical parameters, the black box scans different markets for trading opportunities. It then generates the signals of the entry point in the market by considering different criteria. Each signal is generated automatically and is based on various methodologies such as trend, momentum oscillator, and market reversal point.
Trade execution: On the basis of signal, black box places order automatically in the market. The automatic framework system manages the entry position with the key aspect of stop loss and profit target. For this, numerous strategies are employed such as scaling, scalping and trailing stop.
Risk management: Black box trading system continuously manages the provision of risk management. Turning the risk into rewards or aligning the risk with a reward on each trade is a primary work of the market. Optimization of portfolio and hedging are also strategies for a trading operation that is incorporated by the black box.
Trade Stocks Intelligently by using Black Box
The entry in the market was always a daunting task for newbies as the market is dominated by a large number of firms but now it is easier than ever. Trading in the market is always a risky process but now there is a room in the market for all these apprehensions. One can build an automatic trading system from own office by just knowing the concept of algorithm and then by using it accurately.
Examples of black-box trading
An average trader buys 50 shares of a company when the 50 days moving average goes above the 200-day moving average. This is a technical indicator that stock is due to rise in the short term. The same trader will sell the stock when the 50 days moving average goes below the 200 days moving average, it means the stock is entering a downward. These two are the simple technical aspect of trading and for this, a trader has to observe the data continuously, that often lead to in the wrong direction.
For black-box trading, a program is designed to sell and buy the stock according to prevailing conditions and thus leaving the trader at ease. This is the basic principle of algorithmic or black-box trading. Another example of algorithmic trading is arbitrage trading, which makes profit by the difference in prices.
Black box trading: pros and cons
Technology is subject to criticism. Similarly, the hotly debated topic of the Black box also has various opinions.
Opponents have the view that it undermines the integrity of the financial market in the following ways:
- It increases the volatility in the market by increasing the orders suddenly. It thus creates chaos in the market.
- Black box trading is also subject to a negative chain reaction.
- It creates an uneven advantage for market players as everyone do not have even access to such type of proprietary rules.
Proponents gave the following points in their favor:
- It enhances the efficiency of the market by optimizing the process of the market. it also increases the participation of traders.
- The larger number of traders results in greater trade volume that eventually eases the entry or exit option of the trader by making it more liquid.
- The use of the black box system eases the efforts of a human being. Therefore, the error associated with human beings is also eliminated which also makes it relatively risk-free.
- The key benefit of high-frequency trading HTF is that it increases the bid-ask spread, it allows higher profit to investors.
With the passage of time, the dependency on technology and such an automatic system is also growing. Investors are investing billions in these black-box algorithms. Because it makes sure that trades are executed at the right time and the amount of orders is accurate. An investor can check multiple indicators in the market simultaneously and thus reducing the risk of manual error.
These techniques become more popular when stock exchanges around the world offer incentives to the companies. It also incentivizes the retail trader. Nowadays, the Operation of the black box trading system is not a difficult task.