ALGORITHMIC TRADING: A COMPREHENSIVE REVIEW OF TECHNOLOGICAL ADVANCEMENTS AND MARKET IMPLICATIONS

Abstract

Algorithmic trading has experienced significant growth in recent years, revolutionizing the way trading is conducted. Hence, it is crucial to understand the implications of this transformation for various stakeholders and the financial industry as a whole. The aim of this research paper is to provide valuable insights into the role of technology in shaping modern financial markets, addressing potential risks and opportunities, and facilitating an informed discussion on the changes of these markets in the era of algorithmic trading. Through a systematic review of literature, empirical studies, and regulatory frameworks this research paper examines the impact of technological advancements in algorithmic trading on financial markets by looking at three key themes. The first being exploring the transition from traditional market structures to the widespread adoption of algorithmic trading. Providing a comprehensive understanding of the evolution of financial markets. The second being focusing on the key areas affected by algorithmic trading, including market efficiency, liquidity, volatility, price discovery, and impact on market participants. The third and last theme being an exploration into the regulatory and ethical considerations associated with this technological shift. From looking at specific illegal activities such as money laundering and insider trading to the breakdown of the regulatory measures in market structures such as cryptocurrency, derivatives, and stock markets. The findings of this research paper underscore the transformative nature of algorithmic trading in financial markets. It emphasizes the importance of regulatory vigilance, ethical conduct, and continuous monitoring to ensure the stability, fairness, and integrity of modern market structures.