The financial trading floor from forex, stocks, commodities to cryptocurrencies is experiencing a massive transformation with innovative technologies. It has vested more powers to traders to execute trades in volatile markets by relying on an automated trading platform.
Leveraging technology is a prerequisite for survival in tomorrow’s financial markets. While conventional trading follows traditional charting mechanisms and human judgment for their trading calls, computer-programmed trading software spots arbitrage opportunities between prices in split seconds to make automated trading calls unaffected by human psychology.
Using data as the premise to make automated decisions, automated trading platforms offer traders an upper hand to act upon multiple data points. This includes news, agency reports, historical price changes, and more to execute swift trades to book a profit even before a human trader blinks.
Outlined below are some of the main advantages of an automated trading platform over conventional trading that might soon lose its charm with the growing abundance of algorithmic trading systems:
Operates Based on Objective Rules
Unlike humans, automated software is never misguided by subjective emotions of overexcitement or panic that can be a trader’s pitfall. Trades are automatically executed based on the set of rules whatsoever the market condition or your trading performance is.
Being humans, we tend to make emotional decisions based on previous trading experience and performance. At times it can also be prone to errors. On the other hand, automated trading can scan hundreds of stocks and execute orders in a matter of seconds to book precise profits.
Accuracy and Speed
When it comes to operational details of a trade, machines are well-equipped to handle these tasks with greater accuracy and speed. For instance, filling in the correct order details, even a skilled trader can take at least 15 to 30 seconds to place an order and even such a short span of time can prove costly with lost opportunities. This is especially true for high-frequency trading. The computer can place and close 100s of orders in the time frame we spend to punch in order details and execute it.
Monitoring markets round the clock is a herculean task, and it is impossible to follow abundant data that is released by the second. Most people don’t have dedicated time to do research. However, with an automated trading platform, you don’t have to worry as the software can do the monitoring for you day and night.
Optimization of Strategies
With effective backtesting of algorithmic trading software, you have the flexibility to optimize the parameters of an entire portfolio of strategies and evaluate the strategy using historical data. It’s an invaluable tool for trade analysts to test how a particular position will sustain in a live market before executing the trade.
For instance, you can predict the profitability of Dow Jones US Banks futures during a recession, deciphering previous trends. Depending on how well or how poorly it has performed in the past, backtesting enables you to optimize your trading strategy and minimize your risks.
However, in conventional trading, the problem is that, even if you have some thesis, you don’t truly know whether the probability of your hypothesis is correct and must manually assess feedback from the market.
Given the vast amount of computing power, you can run multiple strategies to scan thousands of signals for trade opportunities. This is not humanly possible in conventional trading, where you have to perform all the tasks manually.
Based on the coded rules you feed into the system, trading software helps you scale up massively yet identify opportunities faster. When a position is entered, orders get automatically generated, which means you can never run out of trading opportunities no matter the size of the trades. You can execute multiple strategies in a single unified portfolio.
Stick to the Trading Plan
An automated trading platform is an expert in adhering to a trading plan regardless of market conditions. With conventional trading, this might not be possible as there is an inherent risk of deviation. Whereas the software helps you set a plan and honor it without making any compromises or shifts.
The concept of letting machines do mundane tasks while we focus on other important priorities is not something new but is slowly taking the trading industry by the storm.
The objectivity, ease of access, convenience, accuracy, and speed make an automated trading platform an invaluable tool for traders. However, careful analysis and insight is key to designing the software to prevent a chain of algorithmic errors.
Nevertheless, automated trading is the future and is set to transform trading to make it easier and accessible to all.
Interesting Related Article: “What is a Trading Platform?“