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Algorithmic Bot Trading vs. Human Trading: Assessing Retail Trading Implications in Financial Markets

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  • Munipalle, Pravith

Abstract

Bot trading, or algorithmic trading, has transformed modern financial markets by using advanced technologies like artificial intelligence and machine learning to execute trades with unparalleled speed and efficiency. This paper examines the mechanisms and types of trading bots, their impact on market liquidity, efficiency, and stability, and the ethical and regulatory challenges they pose. Key findings highlight the dual nature of bot trading—enhancing market performance while introducing systemic risks, such as those observed during the 2010 Flash Crash. Emerging technologies like blockchain and predictive analytics, along with advancements in AI, present opportunities for innovation but also underscore the need for robust regulations and ethical design. To provide deeper insights, we conducted an experiment analyzing the performance of different trading bot strategies in simulated market conditions, revealing the potential and pitfalls of these systems under varying scenarios.

Suggested Citation

  • Munipalle, Pravith, 2024. "Algorithmic Bot Trading vs. Human Trading: Assessing Retail Trading Implications in Financial Markets," OSF Preprints p98zv_v1, Center for Open Science.
    • Handle: RePEc:osf:osfxxx:p98zv_v1
    DOI: 10.31219/osf.io/p98zv_v1
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    References listed on IDEAS

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    1. Menkveld, Albert J., 2013. "High frequency trading and the new market makers," Journal of Financial Markets, Elsevier, vol. 16(4), pages 712-740.
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