Algorithmic Trading Systems vs. Manual Trading

By using automated trading, you can supplement your investment strategy through the use of an algorithmic trading system which executes trades for a specific index, ETF or commodity automatically, i.e., on “auto pilot.” This form of algo trading is primarily used in futures trading because the operating costs (data, commissions) are low and the contracts trade 24 hours for your protective stops to be as effective as possible.

Unfortunately automated trading systems that trade ETFs “exchange traded funds” are not that popular by system designers. Why? Because ETFs have a few things against them which deters a designer from wanting to spend the time and money building a system just for ETFs.


Why Algorithmic Trading Systems for ETFs are Not Common

1. If a system designer has a proven trading strategy they trade and believe in, it is only logical that they build their system for the investment which will make the designer the most money possible. The best ETFs only have 3x leverage which may sound like a lot, but when you compare it to the ES mini futures contract which is roughly 14x leverage you realize the difference.

If I know something makes money, I trade it with maximum leverage in order to make the most money possible during both rising can falling markets

2. Futures trade around the clock 24 hours a day. This is a huge benefit because if the market starts going against your position, your stop will be executed at the price you specified more times than not. On the other hand if you were trading ETFs, the market could gap down below your stop and execute at a much lower level making your lose larger than it should have been/could have been.

3. The third major hurtle is the cost of autotrading as some companies/brokers charge a monthly fee to have automated trading setup and running in the users account. This cost varies between $600 -$1200 a year alone. On the other hand if you were to have your automated futures trading system you would only incur a very small additional charge ranging from $60-$80 a year.


Why Do 73% of Traders Want an Algorithmic ETF Trading System?

In a recent survey on 24% of traders wanted to auto trade futures, while a whopping 73% wanted a system that traded ETFs. The other 3% wanted options or forex by the way, just incase you noticed the numbers didn’t add up.

The good news is that there is an Automated ETF Trading System available by Be sure to review their website for more information.

Our next blog post will be on the Top 10 Advantages of Algorithmic Trading.

The decision to trade using an algorithmic trading system that is automated vs. you manually placing trades be a difficult one to make. Some individuals prefer automated trading over manual trading because it has been tested by experienced traders.

Alternatively, some people – especially those with good intuitions about the market – prefer to adopt their own trading strategies based on comprehensive research.

In short, before deciding on which type of trading style to use, you should be aware of their respective advantages and disadvantages that algorithmic trading systems provide.

Chris Vermeulen