Automated Trading and Its Pros, Cons, Working Methods
For those who have been failing over and over in trading, automated trading and the automated trading system could be a dream come true. As the world is going ahead with technologies, we tend to depend on tech from morning tonight. As a result, we hardly stay for a second without technology, and we wanted to automate our training activities by the automated trading software for our own good. Automated forex trading could be a dream for those, who have been failing over and over in trading.
However, an automated trading system has been introduced as we have asked for it. Nowadays, most of the best forex brokers offer automated trading software to make your trading life easier.
It is exciting! But, before you jump into automated forex trading or any kind of trading, it is mandatory to know some basic stuff.
What is Automated Trading?
The most common question all the newbies ask. The automated trading system is a software-based trading system, which is also referred to as mechanical trading. It allows traders to put entry and exit points along with money management rules to get the maximum benefits from trading.
What faces mostly in trading while placing an order is emotions. Automated trading software keeps the emotion aside and helps you to make the strategies based on data and place orders automatically based on the criteria.
Usually, trading automation was used in forex trading, but it is also used in shares these days. However, it is accessible for anyone with a computer and internet, but you just need to open a trading account with the best forex broker.
However, many people start trading with an automated system without having the proper knowledge about it; therefore, it fails sometimes. So, the following part will teach you the mechanism of automated trading.
How does System Work?
When we hear the word ‘automation,’ it may seem like some simple task with some clicks. But, in reality, you will need to understand some stuff and keep a few things in mind before using the automated system. It works for all types of assets; however, we will explain it for forex automation.
The automated forex trading system starts with analyzing the market based on activity and price chart of currencies. Besides, the system would bring out the important trading signals, which include price instability patterns, changes in the spreads, news on any economic events, and more.
Next, based on these, you can create your custom trading strategy using the parameters. Additionally, you will get automated technical indicators while creating the strategy.
On the other hand, if you are not an expert on customizing the system, you can also hire a programmer. However, you must need a trading platform, which we will discuss later. Once you logged in to the platform and set up the rules, the automated trading software will monitor the market. Furthermore, the software will look for any favorable buy or sell opportunities as per your settings. However, the software will also look for profit and will not take any steps that will make a loss for you unless you have been instructed to do so.
The trading market, especially the forex market, is fast-moving, and the immediate order by the software could turn a small loss. But the loss amount would not be as disastrous as manual input.
What are the Benefits of Automated Trading?
You will not feel the advantages of an automated system unless you use it. It has a long list of benefits that will increase your profitability. We have listed a few of the top pros below.
Minimize the Emotions
It has been seen from research and forex broker reviews that when you manually trade, it involves emotions as well as intuitions. So, you may make the wrong decisions within seconds. Unlike manual trading, the automated trading system executes the order it finds the favorable condition you have instructed. Besides, it will also refrain you from performing overtrading.
Improve the Order Speed
As the market conditions change, the automated trading software has the ability to respond quickly and generate orders as soon as the trading rules are met. In the trading world, seconds or milliseconds matter a lot. Additionally, the fastest speed can generate maximum profit.
Imagine clicking for orders manually, and by the time you click, it has been too late for a profit. With automation, it won’t happen.
Diversify the Trading
With the help of automation, a trader can trade via multiple strategies on different accounts simultaneously. However, diversified trading may have a spread risk while trading on various instruments. So, you will have to analyze and make the trading strategy separately for different instruments.
Once you have the right strategy, trading multiple instruments will be easy, and you will have the opportunity to make a profit from all the orders.
With the proper initial usability guideline, anyone can use automated trading software regardless of their experience. So, beginners can access and understand the system after looking at some tutorials. The best forex broker, who provides automated trading, also provides a demonstration model for the users, which makes it accessible to all.
Before deploying the automated trading system, the user can test the strategy in the back as per historical price data. It allows the traders to make all kinds of possible testing before setting the requirements for live trading. However, that is how a trader can get a clear understanding of the automation.
Cons of Automated Trading
As we have been praising automation, you may feel it doesn’t have any disadvantages. However, automated trading has some minor disadvantages too.
Needs to be Monitored
Trading automation doesn’t mean to put all the instructions, then sit back and relax. However, It needs to get monitored too. It is because there could be some technical failures too such as computer shutdown or malfunctions, loss of internet. On the other hand, the automated software itself could malfunction too. So, the monitoring will help you to identify any concurring issues and get over it.
It is the second issue, as no trading strategy can ensure a guaranteed profit for every trade. So, some traders have the tendency to over-optimize the system to get the maximum profit. However, the software cannot notify about the over-optimization, and you have to take the proper measurement before optimizing for an order.
Automated Forex Trading Platforms
Some platforms are best for forex, while others may be good for other assets. After researching on the top forex brokers list, we have found the following top automated trading platforms you may use.
MetaTrader 4 or MT4
So far, MT4 is the best forex trading platform as well as for other assets. Because of the demand and its ease of access, MetaTrader 4 is used by all the top brokers. If your broker is integrated with MT4, no additional account with MT4 is required.
However, the platform has its own programming language, which is created in a way that anyone can customize it without any coding experience. Besides, they also have another version, which is called MetaTrader 5. However, both of them offer almost the same features.
Meta Trader has customizable robots and expert advisors to make your automated trading strategies. Besides, you can buy EAs from the app market they have.
If you are into options trading, eOption provides low-cost options trading with automation. Trading with this software does not require any programming knowledge. With a few clicks, you can start your automated option trading.
For share trading, Interactive Brokers provide the best-automated trading for share or indices traders. However, it is based on Python, Java, and C++, which can be used as an API to connect with traders’ accounts.
It also provides fast and sophisticated order execution, which will boost your automated share trading.
Is Automated Trading Profitable?
The answer is complicated, it’s between yes and no. Automated trading is profitable if you can use the tool properly with all kinds of research and apply the right strategy. However, no trading platform or tool ever ensures any profitability; instead, automation may reduce the prospective loss.
As automation provides the fastest action, you may get rid of some unexpected losses.
Are Automated EAs and Robots Effective?
When you want to automate any trading, you must have to use Expert Advisors or EAs and robots. These will help you to make the strategy and set the parameters. Once you set any rules, EAs and Robots will search for your given parameters or wait until you match with it.
Whenever they have found any favorable condition, it makes the transaction wight away. So, it can be said that Robots and EAs are effective for the ultimate trading automation.
Although automated trading may attract the trader for many reasons, no one should rely on the automated trading system fully. Nothing is perfect in this world. Automation may face mechanical failure or power outage, or anything can happen, which may distract the automated instructions.
So, it will be wise to keep an eye on the software while running. As a result, it will definitely reduce the risk of any errors and get you the maximum benefits.
On the other hand, server-based automation may provide a solution for any failure. Still, you will need to have some knowledge to automate the trading. Trade with the best forex broker with our detailed forex broker reviews and best forex trading platforms.
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