Benefits Offered By Automated Trading Systems
Posted by Bonnie Miller on March 20th, 2020
Before moving onto its benefits, first it is important to know what automated trading system is. An automated trading system is a system that allows computers to execute and monitor trades. It is also known as mechanical trading, algorithmic trading, or system trading.
An automated trading system creates, buys, and sells the order by using a computer program and automatically submits these orders to a market center. Orders will be automatically generated, based on a predefined set of rules. Once these rules are programmed, then your computer can easily monitor the markets for buying and selling opportunities. Moreover, It allows the brokers to build up principles for both trade entry and exits.
With an automated trading system, you can define specific entry and exit trade rules
that are executed automatically by a computer. Also, it helps traders and investors in automating the trading process. There are countless reasons to have a computer monitors the markets for trading opportunities, they include:
- Improve order entry speed: Computers start processing the orders as soon as pre-set rules are satisfied. This helps in improving the order entry speed and also it executes the repetitive tasks at a magnitude greater than any human equivalent. Moreover, it is beneficial in the market where the market conditions change rapidly.
- Backtesting: It involves programmers running the program by using historical data to determine whether an algorithm produces expected results or not. When a system is designed for automated trading, all rules need to be absolute with no interpretation.
- Diversify trading: This system allows the user to trade multiple accounts at one time which in case diversifies their portfolio. This diversification minimizes the risk by spreading across various instruments. Also, this system has the capability to scan for trading opportunities, generate orders, and monitor trades.
- No Time for Trading: An automated trading system allows you to still participate in the market even if you don’t have enough time for it.
- Minimize emotions: Automated trading systems reduce emotions throughout the process. If the emotions are kept in check, then the traders will have an easier time sticking to the plan. Also, it helps manage those who are bound to overtrade.
- Preserve Discipline: Discipline can be lost due to various factors like fear of taking a loss. So to overcome this, trades are established and trade execution is performed automatically. This helps maintain discipline in volatile markets. Also, it allows traders to achieve consistency by trading the plan.