Algo Trading
Automated trading using rules and code to place, manage, or exit trades.
Quick facts
| Field | Value |
|---|---|
| Category | Options Trading Terminology |
| Use | Learn vocabulary to read chains and manage risk |
Definition
Algo trading uses predefined rules (price, time, indicators, risk limits) to automate execution. In options, algos are often used for systematic entries, hedging, and managing multi-leg strategies with consistent discipline.
Quick example
Info
Example: an algo sells an iron condor only when IV is above a threshold, uses defined max loss, and exits at a set profit target or time rule.
Notes
- Automation does not remove risk; it shifts risk to model quality and execution reliability.
Where you’ll see it
- Option chain (strikes/expiries/OI/volume)
- Order window (market/limit/SL)
- Positions page (P&L and Greeks)
Common confusion
Avoid treating a single term as a “signal”. Terms help you describe risk; decisions should come from a complete plan (view, sizing, exits, and liquidity).
Summary
- Automated trading using rules and code to place, manage, or exit trades.
- Use this term to communicate risk and intent clearly.