What is an Automated Trading System?
An automated trading system is a program designed to enable. Traders to set rules on how to enter and exit trades. They are also referred to as mechanical trading systems. Algorithm trading, automated trading, or system trading. Which once programmed, can automatically be executed through a computer.
Automated trading systems are crafted by highly skilled professionals. Who possess a wide experience when it comes to trading processes. They come in the form of Expert Advisors (EA) and are chosen by. Their level of accomplishments and knowledge in a bid to win the. Confidence of traders who use them. The basic requirement of a fully automated system. Is the use of software that is associated to direct access brokers. And all rules are written in the proprietary language of the platform.
Impacts of Automated Trading Systems
A fully automated system helps traders prevent massive losses as they trade. Why this is possible is. Because as soon as a trade has been entered, the computer automatically. Generates stop-loss orders and trailing stops. These orders in turn serve in protecting. The trader’s investment, and also, profit targets are also generated once a trade is entered.
- Since most traders are not trading electronically. The exchange floors and bare.
- The speed of trade making has increased. Because trading platforms are quite fast and trades are instantly done.
The profitability of Using Automated Trading System
- Automated trading systems assist traders in. Benefiting from any movement that the market makes irrespective. Of whether it’s positive or negative, and this is because. They are purely programmed by the rules that individual traders set.
- This system can also contribute to profitability. Trades because they work articulately in a way that not. Even a human broker or investor can match it. It also comes with a. Simple interface that traders can easily work with. Which enables them to make trades conveniently and efficiently.
Pros of Automated Trading Systems
Saves Money
If you are following a trading system, you do not have to. Subscribe to an expensive market quote or data feed. Neither do you need to have a robust computer before you can. Handle trading software? Also, the fees are quite reasonable and can be deducted from your account.
Output
With trading systems, you can easily meet your investment. Objectives since all of your decisions depend on formulas that are. Developed by an experienced trader. Automated trading systems are algorithmic. Thus function according to the formulas and input programmed into them. These systems are developed by testing against historical data. And systems are designed to exploit price inefficiencies in the market and take. Advantage as soon as one has been detected. Traders, on the other hand, make money. Because the system is able to predict the price action in the right direction.
Trade Diversification
They can come in handy. When it comes to diversifying trades. This is when traders can trade. With multiple accounts or multiple strategies at the same time. This results in a diversified trade that has risks. That is spread over various instruments. Computers are able to identify access across broad markets. In a matter of seconds, where humans are unable to execute such diversified trades quickly.
Cons of Automated Trading System
Over Optimization
This is a situation where traders use back-testing in. Creating impressive trading plans. When these plans are applied in the live market. They do not perform well. What this means is that there never exists a. Perfect trade even when back-testing techniques have been applied.
Susceptible to Scams
Many scammers are known to use systems to fleece traders. They make promises they can’t keep to. Traders in a bid to lure them. Some software even gets lowly priced in order to entice traders to. Purchase it while others promise high profits.
These systems are being monitored. This is a result of computer-related issues like:
- Computer crashes
- Power loss
- Internet and connectivity
- System malfunctioning and downtimes
- Mechanical failures.
These factors can affect trade negatively. As well as interfere with order placements.
Mechanical Failures
There could be discrepancies even with the most. Sophisticated automated trading systems, which could lead to mistakes. There could be discrepancies mostly between. Theoretical trades and real trades.
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