So how does an automated trading system work, and how to find the best one for you? With automated trading, traders and investors can precisely encode the rules of entry, exit, and money management into an automated trading system that allows computers to run and monitor trades. One of the most appealing aspects of strategy automation is that it can remove some of the emotion from trades by automatically placing trades when certain criteria are met. Thus, in this article, we will introduce the reader to automated trading systems, how they work, and the benefits and drawbacks in using the system.
What is Automated Trading?
Automated trading systems, also known as mechanical trading systems, algorithmic trading, automated trading, or system trading, enable traders to programme specific rules for trade entry and exit that can then be executed automatically by a computer.
Trading entry and exit rules can be simple, such as a moving average crossover, or complex, requiring a thorough understanding of a programming language specific to a user’s trading platform, or the expertise of a qualified programmer.
How Does Automated Trading Work?
The use of software associated with a direct access broker is typically required for automated trading systems, and any specific rules must be written in the platform’s proprietary language. Because it can operate like a robot, the tool used in this trading model is sometimes referred to as a trading robot.
A trading robot is essentially software or an application that can be installed on the platform and configured to open, close, and provide alerts automatically. With such capabilities, it is natural that traders frequently rely on trading robots to relieve them of the burden of constantly monitoring positions.
Furthermore, you can learn the trading robot programming language for a variety of purposes, such as personalising robots or developing your own auto trade software based on your own logic or trading system.
How to Automate Stock Trading
Traders and investors can easily set their own entry, exit, and money management rules using an automated trading system, which allows computers to execute and monitor trades automatically. One of the most significant advantages of this method is that it removes some of the emotion from trading and allows for fewer mistakes because trades are automatically placed based on the criteria that we have set.
The trade entry and exit rules can be set even under simple conditions. This can be accomplished, for example, through moving average crossover, or through more complex strategies that necessitate a thorough understanding of the programming language specific to the user’s trading platform. They can also rely on the knowledge of a qualified programmer.
What to Look for in Automated Trading Software
There are numerous automated trading platforms available on the internet at the moment. However, there are some common characteristics that we can look for to determine which one is best for us in order to separate the good from the bad.
When it comes to automated software, accessibility is critical because not all automated software is available in all markets. If you’re more interested in forex trading, for example, MetaTrader 4 is a great tool to have. You must ensure that you know what your preferred securities are in order to make the best decision.
- Low Latency
When using an automated trading platform, there may be a delay between your price quote, transaction, and completion, disrupting your trading experience. The best automated trading system should provide you with the smoothest price quotation, which means they can protect your investments while also providing you with the same market access as a floor trader with the least amount of latency possible.
- Language of Programming
If you want to use a more unique and complex strategy, you may have to programme it yourself. Different types of industrial programming languages are used by different trading platforms. One of the most important criteria to consider when selecting your desired trading platform is the programming language.
- Back Testing with Detailed Price Histories
As investors, we all know how important price charts are for performing back tests, so make sure the platform you select has detailed back testing that can be used across multiple timeframes.
Top 5 Automated Trading Systems in the Market You Can Use Today
1. MetaTrader 4 (MT4)
Metatrader 4 is a popular forex trading platform developed in 2015 and is widely regarded as the best forex platform for experienced traders.
|Programming language||Low quality expert advisors|
|Access to one of largest marketplace||Does not offer customer support|
MetaTrader 5 (MT5) is an improvement over MetaTrader 4 (MT4) in terms of market access to more asset classes, a more user-friendly coding language, and improved backtesting capabilities. Unlike MT4, MT5 is a multi-asset platform, which means users can trade derivatives such as shares and futures that require access to centralised exchanges.
|Programming language||Smaller trading community than MT4|
|Access to one of largest marketplace||Does not offer customer support|
|Superior backtesting capabilities|
Spotware Systems’ cTrader is a trading system designed for retail investors who want to trade in an ECN (Electronic Communications Networks) trading environment. The execution of trades, as well as the platform’s extensive charting capabilities, are two of cTrader’s key strengths.
|70 pre-installed indicators and 28 timeframes||Unreliable trading bots|
|Can export and download charts from the platform||Drastic fluctuations in stop loss order|
|Using cloud storage|
cBots in cTrader and Expert Advisors (EAs) in MetaTrader are essentially the same algorithmic trading feature used for auto trading. Because of MetaTrader’s enormous popularity, you may occasionally hear the term cTrader EAs.
|Plug and play functionality||No intuition that can sometimes help with trading|
|Dedicated developer community||Difficult to code|
|Provides access to the cTrader forum, library, and consultants|
ProRealTime is intended for traders who require advanced technical analysis features such as more than 100 technical indicators, market, limit, stop, trailing stop, one cancels the other, one triggers the other, triple orders, and oblique orders are the eight types of orders. ProRealTime provides zero time constraints and by using cutting-edge market scanning tools, you can find securities that meet your investment criteria.
|Powerful decision support tools||Expensive index and stock data|
|Efficient user interface||Screener is not flexible|
|Provides quality market data|
Benefits of Automated Trading
Although automated trading is a solution that is widely used by investors today, still the use of this system has its pros and cons. Here are some of the benefits investors may get from automated trading.
1. Reduce Emotional Factors
As all of the processes are done automatically, investment mistakes due to emotions can be minimised. Thus, investors can work in a more disciplined manner by any condition, even if the economy is in poor shape.
Of course, even with automated trading, investors’ experience and skill is still needed to set the criteria. This ability is intended to measure the effectiveness of previous investments and learn from that effectiveness.
2. Consistent Investment Strategy
Investors can manage the investment schedule of the Automated Trading System used by setting the automated trading platform that he uses. Therefore, the investor can buy and sell securities consistently even if they are busy with other tasks at hand.
3. Allows Short Stock Transactions
Investors can buy securities automatically based on the arrangements they have made before. Conversely, the Investor can also go out and sell his shares automatically as well. This advantage greatly helps investors in the investment process because today’s stock market moves very fast and has high volatility.
4. Allows Traders to Buy Securities from Various Companies
This is to keep the trader’s investment always safe because the trader has bought many securities in various companies with various risks.
Drawbacks of Automated Trading
1. Potential Failure Due to Technical Error
Although this automated trading can work well in the capital market, technical constraints such as disconnected internet connection remain an obstacle that must be considered so that the transaction process can be carried out smoothly.
2. Supervision is Still Required
This oversight is intended to ensure that the transactions we have made run properly and are not disrupted due to technical factors as stated in point 1.
3. Often Lead to Overconfident Among Traders
This is because the Automated Trading System has a back testing feature, which is a feature to analyse the results of investments that have been made. This feature is clearly needed so that the investments we make in the capital market can work optimally.
However, too much reference to this feature can also lead us as investors to be too optimistic. In fact, it may be that although the back testing results are relatively good, in fact we fail in the next investment. Because investment is not only affected by data in the past but also influenced by current economic conditions and forecasts of future economic conditions.
While appealing for a variety of factors, automated trading systems cannot be considered a substitute for carefully conducted trades. Mechanical failures can occur, and therefore, the system requires monitoring. As an investor, you need to equip yourself with fundamental trading strategy, as well as automated trading strategy to minimise the risk involved in using the automated trading platforms.
Ultimately, financial markets provide investors with a high risk of losing money rapidly. Hence, it is your crucial responsibility to trade with the right amount of knowledge and remember to choose the best trading platform that fits your trading journey.