Automated trading is a coded trading system which allows traders to create trading exit and entry rules that can be programmed and executed automatically by the computer. The coded trading rules can be set by creating strategies. However, this requires proficiency in computer programming language. Traders without programming experience can consult qualified programmers for help. After your set of rules is coded they should be linked to the “direct access broker.” You can find out more about online trading at Etrade.
The motive behind automated trading is to speed up information analysis of the stock market and execute more trades more quickly. Time, after all, is the most important factor in stocks. It is the difference between making millions of dollars in seconds or watching it swiftly go down the drain. Automated trading systems have the capabilities to trade in microseconds by monitoring the market and executing trades exactly as established by the trader.
Computerized market monitoring minimizes roller-coaster emotions, particularly in volatile markets. It gives traders enough time to create strategies and stick to them. Once a strategy is established and computed, it cannot be altered without changing the programming. In addition, it can be a much needed help for traders who are not good at taking risks. Automated trading can also help those who trade at any perceived opportunity. Traders can plan how many times they trade per day and avoid overtrading, as pilot-errors are minimized. For instance, you would not order 1000 shares when you actually wanted to order 100 shares because the trading amount is programmed.
The computer is told what to do and does only what it is told. Traders can test their planned strategies based on historical data before they execute the real put or call. This process of interpreting past market data is called basket trading. With basket trading, you can determine the average of what you stand to lose or gain per trade.
Automated trading also seems like a convenient way of trading by relieving the pressure of sitting in front of the computer the whole day, monitoring the stock markets and executing trades. Many applaud it for offering relief from stress and tension involved with trading. A significant portion of the emotional impacts of trading can be eliminated by utilizing automated trading systems.
The biggest downside of automated trading systems is the chance of mechanical failures. In automated trading, you are using software you created via programming. If the software you created doesn’t exist on the server, mechanical failure can easily occur and disrupt your trading. The most common scenario of mechanical failure is when an internet connection signal is lost and the system gets disrupted. If the order only exists on the computer, then, it will not be able to reach the stock market.
Although automated trading gives you the ability to do some other things while you trade, it still needs some level of monitoring. You need to watch your computer for system quirks, power cuts, computer crashes or internet connection issues. Skeptics often argue that automated trading will expose traders to fraud and exploitation because the implementations of such systems are built not for security but for speed, instead. Experts advise that automated trading systems should never be entirely substituted for carefully calculated executions due to these risks.
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