Algorithmic Trading Market: Investor Preferences in Choosing Algorithms during the Pandemic

Emily_portraitThis Algorithmic Article was written by Emily Adelson – Analyst at I Know First.

Why Investors Choose Algo Trading

With the pandemic impacting our lives greatly, investors watched as horror and uncertainty wreaked on the stock market,  many banks and government agencies fell into great debt and markets crashed. Now as markets recover and the pandemic ends, many investors take a bullish outlook on what the market could look like in the future. But this ability to recover the market so quickly was in no part due to human activity alone, enhanced technology, and sophisticated software are making it effortless for the industry to handle the tragedies of the past year. On the same token that digital solutions help bring in revenue and stabilize the stock market, they also applied to investment management strategies. 

In particular over the last year, because of the market volatility and the work from the home environment, the market has positioned itself well for an algorithmic trading market. Since 2017, algorithms have gotten easier to use every year, which is another reason investors favor them. It’s a result of streamlined technology in current trading environments.  The rating for algo trading is growing significantly over time horizons for each sector including ease-of-use, reduced market impact, lower commission rates, better prices, higher speed, customization, and pre-trade estimates. Data from in Figure 1 shown below details the statistics of each sector from the year 2020 to 2021. Specifically, the most significant increases were seen in trader productivity which increased from 5.80 to 5.97 percent; execution consistency which increased from 5.81 to 5.90; anonymity which increased from 5.72 to 5.89 percent; and reduced market impact which increased from 5.70 to 5.81 percent. Thus, I believe that algorithms are boosting the performance of traders, and making it easier to navigate and move in the stock market. The algorithm can help investment analysis filter out the best choices for trading in the stock market. That’s just some of the reasons it is becoming the top choice of trading with investors, on top of its speed of scanning thousands of stocks at once, and accuracy of carrying out a trade, activities that are well beyond human ability. 

(Figure 1:

Algorithmic Trading and Investor Preferences

As the market begins to shift towards Artificial Intelligence, some investors question whether such sophisticated activity could really benefit the market outcomes and completely replace the human stock process. But yet, Algorithmic trading has grown in popularity with investors, helping them choose long-term preferences and this article denotes that the top 12 investment banks earned approximately 2 billion in revenue from algorithmic and portfolio trading. We should also point out that it was found that 52% of institutional investors feel that they are most efficient when supporting algorithmic trading. 

Furthermore, looking at Figure 2 from, analysts saw increases in seven areas: ease-of-use, reduced market impact, lower commission rates, better prices, higher speed, customization, and pre-trade estimates. On the contrary, decreases are seen in six areas: consistency of execution, trader productivity, greater anonymity, smart order routing, algo monitoring, routing logic. Most notably, ease of use increased in use significantly by 12% and reduced market increase in use by 10.45%. On the other hand, consistency of execution performance decreased by 10.19% and trader productivity decreased by 10.32%, just to name a few. 

(Figure 2:

AI Technology and  Long Only Funds 

Algo Trading is becoming more prominent especially in long-only funds, where investors are looking to algorithms. Data shows that long-only funds with between 0.25-0.50 and 0.5-1 billion dollars tended to show an increase in the number of algorithmic providers they used from 1.83 and 2.00 in 2020 to 2.50 and 2.64 in 2021, respectively. This can be explained by the market volatility seen during the COVID pandemic which has led smaller businesses and managers to expand their business, gain more resources, and rendered partnerships with a larger corporation in order to become a stronger company. That being said, larger companies over 1 billion dollars have declined in the number of algorithmic trading usages in the past year. This is a result of the fact that these companies often feel pressure to merge costs and create relationships with other large companies similar to them. As seen in the graph below, while a small percentage of users are diversifying themselves into the algorithmic trading market, many long-only managers continue to use old strategies fearful of budget costs and market volatility. 

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Algorithmic Trading Market and Value Traders 

A wealth of metrics from tracking the algorithmic investing industry underscore that this is rapidly, and unstoppably, becoming the dominant and winning way to invest. Traders should not be deciding whether to employ algorithmic investment strategies; they should be selecting an investment advisory firm with superior algorithmic science. Algorithmic trading is becoming exponentially more popular over the past year with value traders trading 80% of their stock portfolio using algo trading methods over the past year doubling in popularity from 10.98% in 2020 to 20.75% 2021. Even better, the survey taken this past year reported that over a fifth of people used algorithmic trading, representing the largest group. And it keeps increasing with each year algorithmic trading gaining 12% more popularity in long-term funding for investors looking to finance 20 to 30 percent of their portfolio. 

Detailed results of the 2021 Algorithmic Trading Survey indicate that algorithms are beneficial to, and utilized by, investors in a multitude of ways. Both short-term and long-term investors, favoring a wide variety of strategies and metrics, are honing their use of algorithms to improve their performance. Most notably, As a part of the survey long-only managers choose what types of algorithmic trading strategies they used. The report found that the greatest use of algorithmic services was for dark liquidity markets. At the same time, the percentage-of-participation algos rose to 56.96% from 49.02% last year, indicating a strong preference for the ability to participate in volume at a user-defined rate. Furthermore, in the period of extreme market uncertainty, more respondents have become using such classical algorithms as volume-weighted average price (VWAP) and time-weighted average price (TWAP).

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I Know First and the Algorithm Trading Market 

I Know First is a leading company in the algorithmic trading market, generating daily market forecasts for over 10,000 markets using a self-learning advanced algorithm. The algorithm filters out and charts predictable patterns on the stock market and separates them from random and unprofitable trades. It predicts the future of the market considering other stocks and movements on the market. The Algorithm looks for trends on the market, both positive and negative, and generates a wave chart, essentially giving traders a prediction of the direction in which the stock market is expected to go for the future years. The algorithm is completely based on data and is not run by any human opinions. The algorithm tests years of historical and future market data and proposes suggestions and theories about the market data.

Great success has been achieved by using I Know First’s algorithm shown in the below performance evaluation summary of Aggressive stock forecasts. We can see that the average returns are generally increasing with signal strength filters applied on Aggressive stocks for all time horizons. All three signal groups tend to generate greater returns compared to the S&P 500. Particularly, the highest return reaches 258.34% on a 1-year time horizon, which beats the S&P 500 benchmark (44.09%) with a premium return of 214.25%.


Even though human-controlled investing has been a popular strategy until today, the pandemic has helped investors recognized the power of AI to be able to help predict the market more successfully. With minimal human interaction, it produces accurate and quick results spanning multiple time periods, both present, historic, and future. Investors have a bullish outlook on Algorithmic trading methods as a quick and accurate trading method. I Know First’s algorithm performs with a high level of efficiency.

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Please note-for trading decisions use the most recent forecast.