As the name suggests, automated trading systems are mechanisms that allow stock traders to create rules for trading in various assets and derivatives in such a manner that the trading can be done via a computer. The trader only has to set the rules as to entry and exit of the trades and then the algorithm takes care of the rest. This is why it is also known as algorithmic trading or system trading.
The most important aspect that rules the market is sentiment. However, the most intelligent investors realize that the best financing decisions are taken with a calculated mind. And what is better than a computer? Of course, the computer needs to be fed certain rules and criteria for it to be able to execute such trades.
Let us take an example. In order to exercise arbitrage opportunities in currency markets, say USD and EUR, the trader needs to feed in the figures at which one currency needs to be purchased in one market and at which it needs to be sold in another market. Once a trading system with such rules is created, it can be said to be an automated trading system.
Let us look at some of the advantages of automated trading systems.
- Take out the emotion – Let’s face it, traders experience a lot of high-intensity emotions that adversely affect their decision-making. In such a scenario, if the rules are created using a calm and composed mind, then the system takes care of the trading and reduces a lot of overtrading.
- Reduces error – As they say, machines are more efficient than humans in executing orders which do not require the subjective application of mind. For instance, if you want to place an order of just 100 shares, then there may be a possibility that your trader might hear you incorrectly and place an order for 1000 shares. But the same won’t happen with a machine, which will be precise in following orders.
- Multiple trades at the same time – The best advantage of an automated system is that it is in fact automated, meaning that you do not need a human being to man it all the time. This means two things – first, the human effort can be redirected towards creating better rules of trading and second, the machine can also manage multiple accounts, thereby earning more. Just START TRADING WITH 1K DAILY PROFIT NOW.
- Better Diversification – As stated earlier, the automated trading system allows you to trade multiple accounts at the same time. This is not it, it goes one step further and allows you to trade multiple strategies at the same time. This means that you can diversify and thereby reduce risk by deploying multiple strategies which are counter to each other.
- Faster than humans – How many times has it happened to you that you decided that you would buy a particular stock when it reaches a particular price but when it does reach that price and you go ahead and place the order, the price changes drastically? An algorithmic trading system makes sure that it places your order instantly as it can do it in a fraction of a second.
- Ensures Discipline in trading – Even seasoned traders sometimes get caught in euphoria or are affected by the pessimism in the market. In order to ensure disciplined trading, automated trading systems are the best solution right now.
Having enumerated all the advantages of automated trading systems, it is important to point out that there are certain risks associated with the same like the failure of the system or poor management of strategy. Thus, automated trading systems definitely yield results if planned and executed properly and with proper due diligence.
All said and done, the pros definitely outweigh the cons. The benefits of precision, faster order placement and the possibility of diversification clearly make you reap more benefits if you are a smart trader.