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What is Automated Trading?

By Will Ellis
Last Updated on March 22, 2024

There are millions of people who want to participate in financial markets all over the world, but they are too intimidated and too daunted and overwhelmed by the ins and outs, the rules and regulations.

Many others don’t want to become traders because they know that it requires paying a lot of attention to the market.

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People imagine that trading in a market is like watching a complex and ever-growing graph and then pulling the trigger and making the right move at the perfect time, never too early or too late.

But what if you could take care of a lot of anxiety that is caused by trading? What if the act of actually trading in a market was made far easier and didn’t require you hovering over a mouse or keyboard, waiting to press a button at the perfect second?

That is what automated trading is made to do. With automated trading, people who have little experience in the marketplace can feel comfortable and capable of executing the right trade at the right time.

Table of Contents:

What Is Automated Trading? 📊️


Trading utilising an automated system involves using a program to carry out pre-established procedures for initiating and terminating deals. You, the investor, will specify meticulous technical indicators for establishing opening orders, stops, and assured stops for your holdings.

You may execute numerous transactions quickly with the help of automated trading, which also has the advantage of removing emotion from your trading decisions. That’s because the parameters you select already include all the necessary guidelines. Some algorithms even let you follow trends and make trades based on your pre-planned tactics.

In other words, automated trading is a method that many traders use to automatically run their entire portfolio and make decisions on their behalf. 

Via automated trading, you can live your life, go to your job and go about your business while knowing full well that your portfolio is being taken care of and your trades are being initiated or terminated based on what you want. 

You set the perimeters, you decide when things are initiated and ended, and then you get to know that it’ll all working according to a plan that you created based on what you want for your portfolio and desired outcome.

As you can imagine, automated trading has become very popular over the years. In fact, it has been reported that more than 80% of shares trading in the American stock market come in the form of an automatic trade.

Setting Your Rules 📝️

If you are going to use an automated trading system, there are several things you need to decide. Firstly, you need to know which automated trading platform you want to employ based upon pricing, features, customer reviews, and more.

But once you have figured out which automated trading system you want, you need to settle upon the rules that you will initiate and set. These are vital to have because they will quite literally run your portfolio and make, start, and end the trades for you. 

Choose The Right Platform

Depending on the platform you choose, you might get a lot of great features for the money spent. Some trading platforms feature tools for developing strategies that let clients choose from a variety of widely used technical analysis to develop a series of guidelines that may then be used to initiate trades automatically.

Create The Right Order

After studying the marketplace and the stock in question, the software could decide, for instance, that a longer-held trade will be initiated once the 25-day rolling average passes the 100-day moving average. 

The kind of order, such as market or limit, and the time the trade will be executed (the close of the current day or the start of the following) can also be entered by customers, or they can utilise the system’s default values.

Make Your Own Technique

But, a lot of traders prefer to develop their own personal unique indications and approaches when it comes to the timeline of a trade. They frequently work collaboratively on system development with the coder. Although it usually takes more work than employing the platform’s guide, this method offers far more freedom, and the outcomes could be more satisfying. 

There is, sadly, no ideal investing plan that can ensure success, just like there isn’t in the trading industry.

Depending on the individual regulations, any instructions for precautionary stop losses, trailing limits, and profit goals will be immediately generated as soon as a trade is made. If the deal moves against the investor, this immediate ordering process could represent the difference between a minor loss and a major loss in volatile markets.

Pros & Cons Of Automated Trading 🔎️

Pros ✔️

No More Emotion 🤔️

Automated trading platforms keep feelings to a minimum while trading. Traders often have simpler times when sticking to the strategy by controlling their emotions. Trading orders are immediately performed after the trade rules are satisfied, so traders cannot pause or second-guess the trade. 

Automated trading can restrain investors who are inclined to overtrade, purchasing and selling at every apparent chance, in addition to assisting those who are hesitant to make a move out of fear or trepidation.

Discipline 💰️

In even the most tumultuous markets, discipline and consistency are maintained since trade regulations are defined and trade implementation is carried out automatically. 

Mental considerations like the dread of suffering a loss, or the urge to squeeze out just a little bit more money from a deal, frequently cause control to be lost and see discipline go out the window. However, automated trading makes it easier to keep this discipline since the trading strategy will be adhered to precisely.   

For example, if a mistake is made and a 200 share buy order is placed as a 2,000 share buy order it can wreak havoc on your portfolio. However, automated trading means that 200 will always be 200.

Making a trade plan and following it through is one of the major trading hurdles. Trading plans may be successful, but traders who break the rules change any expectations the program might have had. Human error is always one of the worst things that can happen to a trader. 

There is no trading strategy that consistently outperforms the market. Losses are inevitable in any game. Losses, however, can be emotionally traumatic, so a buyer who has had multiple consecutive losing trades may decide to forego the next one. The trader has ruined whatever hope that the system had if this next trade had been a success. Trading the plan consistently is made possible by automated trading platforms.

Cons ❌️

Monitoring It 👀️

Automated trading systems require monitoring, despite the fact that you would think it possible to switch on the laptop and go about your day. This is due to the possibility of technological malfunctions such connection problems, outages, computer breakdowns, and system flaws that cannot be predicted or often stopped. 

Sadly, errors can occur even in an automated trading system, leading to erroneous orders, missed orders, or double orders.  These incidents can be rapidly found and dealt with if your computer and program are watched.

Computer Issues 🖥️

The concept of automated trading appears straightforward: download the software, turn it on, set the regulations and perimeters you want, and then let the trading begin. And that is usually the case – most of the time. 

However, hiccups do happen. That’s because automated trading is a complex trading strategy that can make your trading life so much simpler, but it is not perfect.

For instance, a trade order might not be stored on a server but instead on your personal computer, based upon the trading program you decide to use. That implies that an order may not always be sent to the exchange of your choosing if an online connection is lost. Sadly, internet connectivity issues exist everywhere and they are very troublesome for automated trading. 

With automated trading systems, all traders should anticipate a learning curve, and it is typically an excellent idea to begin with lower trade amounts while the techniques are being polished.

Why You Should Use Automated Trading ➡️

Automated trading is great for many people who want to enter the market because it takes away so many of the concerns that scare others away. No longer do people have to worry that they’re going to miss a small but pivotal window of time.

Additionally, they do not have to be afraid of typing in the wrong amount when they are eagerly and excitedly composing a trade. They don’t have to be scared about human error, something that can devastate other traders.

Instead, people can focus on what matters most: finding the stocks they want , and commencing a plan to get them. When automated trading is in control, buyers can rest assured that their portfolio is being filled with the right stocks at the right time. Trading doesn’t have to be scary, nor time-consuming.

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