What are the risks of algorithmic trading?

Algorithmic trading often looks very attractive. From the outside it seems convenient: the strategy works according to the rules, trades are opened automatically, a person does not waste time constantly monitoring the market.

But the important point is that automation does not eliminate risk. It only changes the form of its manifestation. This is why treating algorithmic trading as something “safe by default” is a mistake.

Key risks

Weak strategy. The algorithm operates according to the logic that is built into it. Bad logic doesn't become good just because it's automatic.
The market is changing. The system can work well in one phase and noticeably worse in another: trend, sideways, surge in volatility.
Over-optimization. Sometimes the parameters are too adjusted to the history, and the test results in a beautiful curve, but in live trading the result is worse.
Excessive risk management. High profitability is often achieved at the cost of a dangerous load: large lot, grids, averaging, martingale.
Technical glitches. Internet, server, terminal, delays and quality of order execution affect the outcome.
False sense of security. The automatic strategy also needs to be understood and controlled, especially in drawdowns.

How to reduce risks

look at real statistics, and not just promises;
evaluate the drawdown before connection, and not after it;
do not start with an amount that would be painful to lose;
avoid strategies where the result looks too good and too smooth;
understand at least the basic logic of trading.

Bottom line

Algorithmic trading is not a way to remove risk, but a way to trade according to a system. It may be more disciplined than manual trading, but it has weaknesses: market changes, errors in logic, over-optimization, technical failures and dangerous risk management.

The healthiest approach is not to idealize automation, but to look at it as a tool that is useful if the statistics are transparent and the risk is acceptable to you.