Automated Trading Systems And Their Benefits

Automated trading systems are also referred to as mechanical trading systems that utilize trading algorithms to function efficiently and arrive at an appropriate decision. Also known as automatic investing, algorithmic trading, and black box investing, they offer extensive benefits in the ever-fluctuating markets.

During the path of converting several strategies into the best mechanical automated investing system, we came across the feedback where individual investors were curious and wanted to learn the functioning of the system and the process of the calculation.

Though there are many people who heard about automatic trading, algorithmic trading or automated investing, big financial companies and trading houses utilize the system for a better output. On the contrary, the use of the systems by these institutions is increasing its popularity. Several programmers and Ph.D. holders’ are now concentrating on the system for it offers vital advantage to the traders. Automated trading systems calculate the inputs it receives in the electronic format.

The following are the benefits associated with the use of the mechanical investing:

  1. The methods through which you can adjust the strategy are numerous. You can alter it according to the securities and market period
  2. You can execute multiple strategies within the system that allows you to save time
  3. You can enhance discipline with the assistance of mechanical order execution
  4. Enhances investing consistency
  5. Saves time in analyzing and executing decisions

Benefits of Algorithmic Trading Systems

The advantage with the use of automate trading strategy is enormous. It outperforms the market and helps in accumulating profits. The performance of the mechanical investing strategy outperformed the system executed by humans. The S&P 500 benchmark recorded the performance for an extended period.

Save Time With Automated Trading Systems

Automated trading systems eliminate the need for you to invest an ample amount of time in researching the trades and identifying the profitable trades. The mechanical investing system collects data through the electronic format and executes the best decision automatically. It reduces the stress experienced by the investor and offers free time.

Low transaction costs

Mechanical investing system turnout is little, as you will trade just a few times in a year. It will reduce the running costs and almost eliminates the brokerage fees (you may have to pay the lowest fee based on your operations). On the other hand, investing houses charge hundreds of dollars a month as commission for their service. Money saved in terms of the brokerage fees and commissions add to the long-term investment returns.

Historical performance

automated trading systemsInvestment firms, brokers, and agents tout long-term investments such as five and ten-year tenure of as a potential investment for increased returns. However, the performance of the mutual funds in recent years, state a different answer. Bill Miller, a prominent manager, outperformed the S&P 500 for more than 15 years. However, an improper judgment and performance of the mutual fund led the ten-year return fall below the benchmark. In a similar case, Fidelity Magellan was a star mutual fund person under the management of Peter Lynch. However, he underperformed below the benchmark for more than 15 years after he left.

The historical performance has a meaningful importance in the mechanical investing strategy. The approach utilizes the objective measures, valuations, and efficiency, unlike the discrete trading strategy. If you have a clear picture of the back testing limitations, you will be in a position to build the investing system in an efficient way that functions excellently and predicts the future performance. It is uncertain that the historical performance gives fruitful results again in the future. However, the fluctuating market condition and the current behavior will continue to go down the path as in the past.

Removing emotional decisions

With the help of the mechanical investing system, you will be removing the biggest enemy – Emotion. Emotion-based decisions induce high volatility and make it impossible for any investor to reap benefits. In fact, investors often buy when the market is in a strong position and sell when it is falling down. On the other hand, the mechanical investment system removes emotion from the equations and considers the values to return a meaningful decision. It reduces the risk of investing outside the investment plan and offers you the ability to save money as a long-term investment.

The advantages associated with automated trading strategies are numerous. However, the key factors are to pick a particular strategy and continue with it. AlgoTrades automated trading system is a clear winner with over 40% annual return for a period of six years. By sticking to the preferred strategy, even during tough times, you will be able to reap excellent returns, in the long run.