Automated Trading Guide: How it Works, Pros, Cons and More
Automated trading is on the rise, as investors look to technology to deliver consistent returns.
Automated trading, also known as algorithmic trading, is becoming increasingly popular and already accounts for over 80 percent of trading volume in the world’s leading stock exchanges, such as the NASDAQ and the FTSE 100.
Hedge funds and propriety trading firms have specialist teams of quants and analysts who develop, test, optimise and deploy automated trading systems to generate a profit. But there are also many automated trading systems which have been created by specialist companies and are available to buy – typically for a few hundred dollars – or for free as part of an integrated online trading account. READ: 3 Things to Consider When Trading Forex This gives beginners access to immensely powerful and intelligent algorithmic trading systems, which they can deploy to generate a consistent profit.
How Does it Work?
Automated trading systems are essentially pieces of software which are programmed to open and close trades, based on various strategies developed and tested by analysts and quants.
Once a customer has purchased an automated trading software, they simply need to integrate it into their online trading platform and allow it to begin trading on their behalf. That’s all there is to do!
Some software packages allow customers to tweak the algorithm to suit their requirements, though we advise traders to just utilise the default settings unless they have a quantitative trading background.
The Benefits of Algorithmic Trading
A potentially lucrative source of passive income.
Quick and easy set up.
Potential to make higher returns than with conventional trading.
Benefit from widely tested and optimised trading systems.
Machines take the emotion out of trading, so they don’t make costly rash mistakes driven by emotion.
The Drawbacks of Algorithmic Trading
Subscription fees can be high, though there are some free options which are just as good.
Some systems don’t have a 100 percent uptime.
Is Automated Trading Right for Me?
Automated trading is suited to beginners and experienced traders alike, as the systems can generate profit for traders of all levels of experience.
There’s a reason why propriety trading firms and hedge funds are relying more and more on automated trading – because it delivers superior returns.
However, you should be mindful that there are a number of automated trading scams out there, so you should only consider purchasing or using a system which has been recommended by a third-party.
In addition to automated trading, you should also consider utilising a trading signals platform. These signals instruct traders what trades to place by analysing the market, and there are many different trading signals packages available online.