COVID-19 Impact on Algorithm Trading in Semiconductors and Electronics Industry

OVERVIEW
Algorithmic trading, automated trading, algo trading or black box trading is a technical development on the stock market. It is a programmed process running on a system that follows a complex series of trading instructions (algorithm) to generate income at a rate and frequency that is nearly impossible for human traders. Automated trading or algorithmic trading is gaining tremendous traction, which is useful for capital markets and is being adopted in countries such as the United States, India and the United Kingdom. The foreign exchange market has seen a rising involvement of algorithmic trading, that is, automated transaction mechanism focused on pre-determined programmes. At the same time, the need to change has become more important to understand its characteristics.
Thanks to developments in cloud computing, quantum computing, blockchain, artificial intelligence, and machine learning, algorithmic trading or automated trading in financial shares based on algorithms has seen a sharp increase in recent years.
Financial firms make use of algorithms to track and execute transactions at a speed and pace that are difficult for a human trader to match. And as financial institutions look for ways to develop data analysis, modeling tools, and underlying processes to speed up execution, increase market liquidity, and generate better risk-adjusted returns, the goalpost continues to shift.
However, this rise in algorithmic trading comes with its own set of risks. Regulators are increasingly worried about the possible effect of failed algorithms on the functioning and stability of financial markets. Defective algorithms can lead to severe losses, with financial institutions' possible failures in extreme scenarios and systemic implications for the economy. The risk of algorithms being used for market manipulation and price manipulation is also of concern.
Stock prices reflect expectations of future earnings, every economic hypothesis that seemed true a month ago is being reassessed, and none is being reassessed as COVID-19 decreases economic activity and income. Increased levels of uncertainty and random panic in financial markets have made forecasts difficult, as much of the world is now in a state of stagnation. Prediction of stock-market moments using traditional statistical methods is not adequate.

IMPACT ON DEMAND AND SUPPLY CHAIN
In 2019, in the FX spot market on EBS2, one of the most widely used automated broking systems on the interbank market, the algorithmic trading share rose to about 70-80%. The FX trading system and the operation of the economy appeared to modify these changes in trade methods. The period of February 2020 to the end of March 2020 is an example of stress in global market volatility has risen as a result of the Pandemic COVID-19. Volatility of USD / JPY has sharply increased in March, though liquidity increased indicators, such as distribution of bid-ask and quantity of bid-ask best quotes (deep) have significantly degraded. Read in detail…