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Understandably, for the sake of self-preservation and avoiding disappointment, we tend to all be wary of something that seems too good to be true. Conversations around automated trading software can sometimes begin to sound a little worrying in that regard.

After all, an automated trading system is based on algorithmic trading. Algo trading relies on sophisticated program coding to execute both buy orders and sell orders in the market for the sole purpose of turning a profit.

In this ultimate guide, we’ll go through exactly what automated stock trading software is and isn’t, so you’ll know just how good and true such systems are likely to turn out to be.

Automated trading - an introduction

Automated trading software is designed to minimise trader involvement by determining automatically when a trade should be executed. It then also executes the actual trade based on the predetermined entry and exit points. As its name suggests, this is all done automatically.

Of course, there is some level of involvement from a trader or coder. The conditions, indicators and instructions all need to be coded into the software. The trading strategy of the particular trader in question will determine not only the instructions themselves but also the level of simplicity or sophistication in the trading instructions.

There are three very important aspects to automated trading that has contributed to its explosion in popularity.

  • It removes human fallibility in trading by automating trade according to specific indicators or conditions.
  • It allows access to a variety of markets simultaneously.
  • It allows anyone to engage in trading, provided they have access to both a computer and sufficient internet.

Automated trading system in Forex

As one of the enduringly popular markets for trading, Forex automated trading software is regularly and widely used. A sufficiently pre-coded forex trading algorithm will analyse different markets and currency price activity to identify and take advantage of discrepancies in price, anticipated movements based on political news, fluctuations and patterns. In other words, traders can still determine what market order they wish to execute and when they wish for it to be executed and the automated trading system will take care of the rest.

This is commonly referred to as foreign exchange autotrading.

Types of foreign exchange autotrading

There are two types of foreign exchange autotrading.

Automated Trading Advisors

This form of software does not actually execute trades. The broker, or trader, still needs to place the various market orders. Rather it simply offers trading signals based off of the parameters coded into it. There is still the opportunity to refrain from executing the trade and it preserves the ‘human element’ to the trade.

Automated Trading Robots

This forex automated trading system conducts the entire process automatically, from signal identification to execution of the trades. To that end, trading strategies is still an important and integral component as it will determine how a software algorithm is programmed to act. Once set though, everything else, including stops and sell orders, will be carried out without any intervention necessary from the trader.

Can automated trading systems ever be wrong?

How come automated trading software isn’t always successful in bringing in a profit? After all, if it were, you’d be even more forgiven for thinking this is all too good to be true.

While invaluable, and helpful in benefiting from the majority of market movements, automated trading software does not guarantee correct trading always.

The majority of trading robots operate within a clearly defined and specific range. The pips that occur within this range offer profit opportunities, but when there are unexpected or unusually strong movements in the markets even the automated software can both fail to turn a profit or have the profit they did turn previously subsequently lost.

The benefits of automated trading systems

Now that that disclaimer about the software’s lack of infallibility has been expressed, it’s important to go through the benefits of automated trading systems.

No human error

Outside of the initial coding, the lack of human interaction and intervention in the automated stock trading software means that the various cognitive biases, emotions and other inhibiting human character traits that can negatively impact a trading decision can be removed. Often, hesitation, fear, greed, second guessing or other emotions can cause traders to abandon their trading strategy. Automated software prevents this from happening by only executing trades in accordance with the initial trading plan.

Market diversity

The most popular automated trading systems allow trading across markets and in numerous assets and financial instruments. Not only is this choice a huge benefit for traders, but it also allows you to access difference markets simultaneously and hedge your risk accordingly.

Allows backtesting

Backtesting can be an important part of developing one’s trading strategy and learning from mistakes. As a general method it’s the application of your trading strategy using historical data to see how successful it would have been and inform you how likely it is to be successful when executed in live trading. Automated systems give you the opportunity to backtest your strategies and perfect your strategy as much as possible.

Widespread accessibility

There is a wide variety of automated trading software platforms out there, but the most popular among them for beginners, retail and independent traders are universally accessible if you have access to the internet. Many of them even offer demo or trial accounts and models prior to engaging in live or real trading. Of course, the levels of sophistication, the costs and the features of each platform will vary though.

Trading speed

You might be quick at making decisions, especially in trading, but executing your decision will always take time. Markets can and do move fast. Your success can often depend directly on your ability to move quick enough to take advantage of the market. Automated trading systems allow for instant trading (or cessation of trading) to increase the probability of making a profit.

The downside to automated trading systems

There are a couple of additional and important points to bear in mind with automated trading.

  • It’s still important to monitor your automated system to ensure that in the event of malfunctions you can rectify the fault and resolve the issue as soon as possible.
  • Automated software can lead to traders becoming unrealistically optimistic about their trading strategy and therefore make suboptimal trading decisions.
  • Automated trading strips out both human error but also human creativity. Keep the limits of pre-programmed automation in mind when engaging with such software. Sure it can accumulate and analyse super-human amounts of data, but not all that data will actually be accurate.
  • Even automated trading software requires extensive research, skill and knowledge about trading. It’s not (unfortunately) a machine which you can just make money from by pressing a button.
  • Be wary of scams! There are a lot of them out there. Make sure to evaluate potential platforms and software thoroughly, or speak to experts in the field - like our team at Global Prime.

Choose MetaTrader 4 with Global Prime

MetaTrader 4 was the first platform to offer automated trading to everyday and aspiring traders. Since then, it has acquired millions of users and transformed how automated trading software is utilised.

When combined with Global Prime’s account offering, you’ll be able to leverage the world’s most popular trading platform with our market leading trading conditions. If you’d like to find out more, get in touch with us for an obligation-free, friendly conversation today.