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Algo Trading vs Manual Trading: Which is Better?

30 Jul, 2025

4 mins read

In today's fast-paced financial markets, the debate between algo trading vs manual trading is gaining traction. As technology reshapes how we invest and trade, both retail and institutional participants are exploring which approach offers better control, speed, and profitability.

This blog provides a detailed look into what is algo trading, the difference between algorithmic trading and manual trading, key strategies, and where each style fits best within the stock market landscape.

What Is Algo Trading?

Algorithmic trading, or algo trading, refers to using computer programs to execute trades based on pre-defined instructions involving variables like price, time, and volume.

This method is especially popular in the stock market, where milliseconds can make a difference.

How it works:

Algorithms analyse real-time data and execute trades automatically.
Traders define entry and exit rules, often based on technical indicators or statistical models.
Orders are placed without human emotion or delay.

What Is Manual Trading?

Manual trading involves human decision-making and direct order placement through a trading platform. Traders observe the financial market, interpret data or news, and decide when and what to trade.

While slower, it allows for discretionary decisions, making it better suited for those who like to analyse market sentiment or react to unexpected developments.

Key Differences – Algo Trading vs Manual Trading

Factor	Algo Trading	Manual Trading
Speed	Extremely fast (milliseconds)	Slower; based on human reaction
Emotion	None – entirely rule-based	Prone to fear, greed, hesitation
Execution	Automated, consistent	Manual, can vary
Scalability	Handles multiple trades/markets	Limited by individual focus
Customisation	Requires coding or platform logic	Flexible, based on trader’s discretion
Adaptability	Struggles with unpredictable news	Humans can interpret nuance

The key difference between algorithmic trading and manual trading lies in automation versus discretion. Algorithms excel in speed and volume, while manual trading gives room for flexibility and personal judgement.

Algorithmic Trading Strategies Explained

Traders and funds apply a wide range of algorithmic trading strategies to capitalize on opportunities in the financial market. Here are a few widely used methods:

1. Trend-Following

Uses technical indicators like moving averages to trade in the direction of the trend.

2. Mean Reversion

Assumes prices revert to an average value over time, making it useful in ranging markets.

3. Arbitrage

Buys and sells the same asset across markets to profit from price differences.

4. VWAP (Volume-Weighted Average Price)

Breaks large orders into smaller ones to match average trading prices, reducing market impact.

5. Market Making

Continuously quotes buy and sell prices, aiming to profit from the bid-ask spread.

Benefits of Algorithmic Trading

Here are some core algorithmic trading benefits that explain why it's growing in popularity:

High Speed & Precision: Algorithms react instantly to changing market conditions.
Emotionless Execution: No fear, greed, or second-guessing.
Backtesting Capability: Strategies can be tested with historical data to fine-tune performance.
Lower Transaction Costs: Efficient execution can reduce costs due to less slippage.
Multitasking: Can manage hundreds of trades or assets at once.

These benefits are especially valuable in today's dynamic stock market, where time and consistency can directly impact returns.

Limitations of Algo Trading

Despite its strengths, algo trading has its drawbacks:

High Setup Costs: Developing or licensing a robust system is expensive.
Technical Complexity: Requires coding skills or reliance on a platform developer.
Overfitting Risks: Some strategies perform well on historical data but fail in live markets.
Dependence on Technology: Power or internet failures can cause disruption or financial loss.

When Is Manual Trading More Suitable?

Manual trading continues to serve important roles in the stock market, particularly when:

Subjective judgement is needed—e.g., reacting to earnings news or political developments.
You prefer control and flexibility over full automation.
You're a beginner still learning financial market dynamics.

Manual trading also helps understand price movements, patterns, and investor behaviour, which can later inform a transition to algorithmic models.

High-Frequency Trading vs Algorithmic Trading

While both use automation, high-frequency trading (HFT) is a specialised form of algorithmic trading.

Aspect	High-Frequency Trading	Algorithmic Trading
Speed	Microseconds	Milliseconds or seconds
Volume	Extremely high	Moderate to high
User	Institutions	Both retail and institutional traders
Focus	Ultra-short-term inefficiencies	Wide range of strategies and timeframes

HFT relies on co-location and low-latency infrastructure, whereas most algo trading can be conducted via broker APIs or third-party platforms.

Conclusion

So, which is better: algo trading or manual trading?

If you value speed, consistency, and scale, algorithmic trading might be a better fit—especially if you have access to technology and technical expertise.
If you prefer a hands-on, intuitive approach or are still learning the ropes, manual trading provides more flexibility and discretion.

Ultimately, many traders blend both—using algorithms for execution but retaining human judgement for strategy. Understanding both styles gives you the freedom to evolve with changing market trends.