The Pros and Cons of Using Automated Trading Systems


The Pros and Cons of Using Automated Trading Systems

Automated trading systems enable traders to a particular set of rules in placing orders that you can run through a computer. Around 75% of shares on US stock exchanges are from automated trading.

In this article, the pros and cons of automated systems are highlighted.

The Pros of Automated Systems

Automated systems can provide a long list of advantages than manually placing trade orders, and they are as follows:

Emotions are Ruled Out in Automated Trading

One of the most significant benefits of automated trading systems is its capability to lessen the emotions involved in the trading process. Generally, when the trader keeps his feelings at bay, he usually has an easier time doing what is planned initially.

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Since trade orders are done instantly when the rules placed are met, the trader wouldn’t have the time to question the trade order. Aside from enabling traders to “pull the trigger,” an automated trading system can put a limit to those who place trade orders excessively.

Discipline is Preserved

The discipline is protected even when the markets are volatile. Traders often lose their cool and control when they fear losing money or want to get a small amount of profit from the trade.

One of the challenges you’ll encounter when you are trading is to plan the trade and purchase the plan. When you disregard the trading rules, there is a considerable chance that any expectancy you have maybe altered even if the trading plan is profitable. After all, trading does not guarantee a hundred percent win rate all the time.

The Speed of Order Entry is Better

Since automated trading systems respond to fluctuating market conditions instantly, they ensure that orders are generated as soon as the preprogrammed conditions are met. Getting in and out of the trade plays a crucial role in the outcome of the trade’s outcome. When a position is entered, the other trading orders are instantly generated, and that includes profit targets and protection from losses.

A Disadvantage of Automated Trading Systems

While automated trading systems pride in the advantages that they offer, there are also drawbacks and realities that you, as a trader, should know. Here is one of those:

Mechanical Failures

The theory of automatic trading is making it simple for traders like you: Create software, put specified instructions, and watch it trade on its own. However, that’s not entirely correct in real life because no matter how they make it seem like it’s that easy, it’s still not infallible.

A trade order can live on a computer and not on a server, but it depends on the trading platform used. When a connection lost happens, there is a considerable chance that a trade order cannot be processed and sent to the trading platform.

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While there is a long list of advantages when you are using an automatic trading system, you should also try to look beyond what is presented to you. As mentioned above, trading does not guarantee a 100% win, no matter what method you use.

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