There are numerous online automated trading options and stocks, futures, bonds, Gold and Forex are just to name a few. Typically, a trader initiates a buy and sell order manually. However, in present day trading one can participate in the financial market without having to execute trades yourself. This has been made possible using desktop and web-based automated trading tools. These systems automatically buy and sell orders based on how they have been programmed to achieve the task.
The primary paraphernalia for a desktop-based automated trading platform are a computer, a brokerage firm, detailed compilation of market trends, the internet, trading and charting software and a backup of the entire system. The quantity of order, the timing and the price are the main factors that influence profitability when investing via automatic trading platforms. Since computers monitor and execute trades on your behalf, the whole process is completed in a shorter amount of time giving you an edge over others.
Choosing the right technological platform is an important precondition to the efficiency of this system. After making the right selection, you must create personalized quantitative investment strategies by inputting the rules for trade entries and exits. Following this, test the strategy and automate it. You must update it regularly to confirm with the changing market trends.
The Advantages of Automated Trading
· Non-emotional Trading:
Involving your emotions is the biggest blow to any investment strategy. Automated trading helps deal with fear, greed, poor time management and other similar emotions that influence your trading decision thereby limiting your success.
· Personalized Trading Strategies:
What bothers most traders about an automated system is that they will have to work with standard or pre-set investment strategies. This is a misconception. As a trader, you can develop personalized strategies that match your investment goals by setting the required parameters.
· Consistency, Constancy and Stability:
The system creates an algorithm based on the parameters you set for it. Thereafter, it goes ahead and executes trade orders round the clock, in markets all over the world based on the algorithm.
It is not often advised to have all your money concentrated in one place as in case of a market downswing you risk losing it all. Automated trading helps distribute risks across varied positions by allowing you to trade various strategies and accounts at the same time.
The Disadvantages of Automated Trading
· Personal monitoring of anomalies:
The computer is a system and therefore vulnerable to damage. There have been issues of missing and errant orders or duplicate orders. Thus, although it is automated, it does call for human monitoring to ensure the system works as efficiently as possible.
· Mechanical failures:
A server crash, poor connectivity and power loss increase downtime as far as the computer system is concerned. In event of such issues, the orders might not be completed and are left midway.
Thus, to conclude, automated investing tools can offer great benefits to a beginner struggling to understand how the system at hand works. With the help of a financial advisor, you can set the rules and let the system trade on your behalf. This saves a good amount of time and effort on the part of the trader. However, relying heavily on such robots or automated systems is also not advisable as they might fail especially when there are drastic changes in the market.
Automated investing can be of great help to a newbie as well as a seasoned investor. And, although it has its disadvantages, smart application of an automated trading system won’t make them matter much.