Auto Trading

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What is Auto-trading?

Auto-trading uses a computer program to automatically buy or sell orders. Orders are placed when the trade conditions in on the system or program are met.

  • Auto-trading is when a trade is placed automatically based on a programmed strategy.
  • Advanced auto-trading, requires a sophisticated also well-written trading program.
  • They will execute orders, once a programmed strategy’s conditions are met.
  • Auto-trading programs are based on strategy, however, the strategy must be programmable, it should also be tested for profitability before attempting to activate the program.

How it works

Automated trading refers to the use of software, such as scripts, algorithms, bots, expert advisors, etc., to execute a predefined trading strategy on behalf of a trader.
Automated trading solutions are used throughout the whole capital markets sector, which means that players at all levels use the practice. Market makers, order processors, crypto traders, futures and options traders, forex traders, hedge funds, asset managers, and banks all use trading algorithms.
The acceptance of automated trading solutions by traders of all backgrounds has varied over the past decade. With the rapid advancement of technology, the cost and technical barriers associated with developing complex automated trading systems have been decreasing. Today, nearly anyone within the forex community can develop an algorithm for automating their trading strategy.
The endless YouTube videos and the countless online trading forums provide tons of previous answers to commonly asked questions for investors with accounts as small as a few hundred dollars. The trading algorithm is then run on a free trading platform like MetaTrader 4, which is usually provided by forex brokers. In the region of twenty dollars a month, retail traders can run the trading application operating their bot on a VPS.
In contrast, a multimillion-dollar firm with dozens of analysts and developers may create complex proprietary trading algorithms. In LD5 data centers like Equinix, around the world, the majority of the world's major banks and forex trading venues run their trading servers alongside the firm's software. The software could be hosted on hardware that costs as much as several thousand dollars per month.

The process of trading forex is automated by means of forex trading robots. Our judgments are significantly flawed by hundreds of biases. It is generally considered that the disposition effect is the most notorious of traders' behavioral anomalies. People dislike losing far more than they enjoy winning, and this is referred to as the disposition effect. Taking this into the context of trading and risk management, it implies that traders would rather close a position at break-even or with a small profit in order to avoid a loss. Additionally, some traders are hesitant to close a losing position as a result of a failed trade set-up, since they hate losing. They will still feel good about their closing trade if they make just a few cents, regardless of the amount they won. Likewise, those who fall prey to the disposition effect usually shut down profitable positions too soon, as they are afraid of pullbacks after they close their positions. A recipe for a very low risk-reward ratio happens when non-profitable positions are closed too early while unprofitable positions are let loose excessively. The purpose of automated trading solutions is to prevent traders' emotions from taking over their decisions. Unlike manual trading, an automated strategy will not care whether it loses or wins.

Financial markets are dynamic markets with the ability to operate across various time zones, which means that opportunities are always available, especially in the foreign exchange market. There are some traders who build systems that analyze different currency pairs or even different asset classes to determine trends over time. Another approach that some traders use is using dozens of technical analysis indicators to generate a signal. We know how exhausting it can be to process so much information. Automated trading, on the other hand, has been found to be more efficient and effective at processing large quantities of information at one time as compared to humans. Trade bots are much better at covering a much bigger area than humans.

A trader is required to pay close attention to the current economic and geopolitical conditions. There has been a constant debate over whether or not there will be a Brexit deal. In addition, positive media coverage regarding the efficacy of COVID-19 vaccines or negative coverage concerning rising cases and lockdowns in financial capitals such as New York or London may influence your attitude toward the market. 

The truth is that fundamental news is almost always already priced into the market, and the price reflects the sentiment. Particularly in the case of shorter timeframes, this is true. The algorithm can disregard external sentiment and fundamental information about the market and concentrate only on the technicals and price movement. 

The disadvantage of automated trading is not being aware of economic news events such as the NFP and similar reports that may influence the market in the short term. The bot may misinterpret the price behavior if it doesn't understand the context behind short-term volatility. Therefore, many automated trading strategies do not consider high-impact news announcements.   

If you are interested in automating your forex trading, you will be pleased to discover there are several free platforms and resources available. As elaborated earlier in the article, trading platforms such as MetaTrader 4 have all the resources required for traders to develop EAs and custom indicators. In addition to the ability to develop, test, and run your EA or cBot.

Traders with advanced skills may choose to develop a completely customized trading system independent of any trading platform and connect it to various brokers via the FIX API. 

EA, PAMM & Copy Trading

Expert Adviser

An Expert Advisor is a computer program is designed to trade automatically. These programs are often fully automated and integrate with online forex brokers or exchange platforms.

An Expert Advisor will determine whether to buy or sell an asset at a given point in time.

Percentage Allocation Management Module

PAMM known as the Percentage allocation management module indicates pool of money for forex trading.

An investor can decide where they can allocate their money with a trader or a money manager of their choice.

 It is possible for traders and managers to manage multiple forex trading accounts with the aim of generating profits.  

Copy Trading

Copy trading is a methodology used mostly in forex markets. it is a tool that allows investors to copy the trades of a successful and experienced trader and implement their trades, in almost real-time, in their own accounts.

Copy-trading was originally only available to institutional clients, now is available to retail investors.

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Copy trading services are available on eToro’s Social Trading Platform. Traders can also access CFD Trading, Investing, and Professional accounts to trade a wide range of markets, including Stocks, ETFs, Crypto, Indices, Commodities, and Currencies.

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