Automated trading systems are quite popular in financial sphere nowadays. This trading system is ruled by a certain set of rules as defined by a trader. It basically enables Traders to execute their trade orders automatically via computer by giving instructions. An Automated trading system is sometimes also referred as algorithmic trading, as the trading system works on some predefined algorithms. All the orders which are executed will be reflected in the Demat account of traders. The most striking feature of this system is the mechanism used for operating. They offer investment assistance as well by performing a thorough analysis of different market factors and determining traders when is the right time to trade.
Some of the most recognized benefits of the automated trading system are discussed below:
1)Selecting important and unimportant factors
For traders market research is a basic and mandatory requirement. To perform market research many factors are considered and their effects are analyzed. Though human brain is powerful but it can absorb certain information. As a result of it there are chances that some important factors are left or ignored. An automated trading system helps in performing quality market research by taking every required factor into consideration which is important and leaving the less important factors.
2)Less chances of mistakes
Usually, errors are human based. Based on personal preferences traders overvalue or undervalue things which affect their performance in the market. Using automated trading system the chances of errors are reduced, as trading strategies are based on computerized calculations.
3)Automated trading removes the role of emotional factors
The market is of highly volatile nature, traders often panic and make decisions which may not work in their favor. Emotional quotient plays a crucial role in how and when traders initiate trades. For example, a trader may choose a particular stock to trade with based on his personal preferences. Emotionally driven decisions are not the best decisions when it comes to trading. Using automated trading system role of an emotional factor in trading decisions are completely eliminated. As the automated trading system works on a pre defined algorithm. A trade order is executed once the defined set of rules are met.
4)Back testing the results
Returns which are likely to be earned by a trader depends on the viability of the trading strategy which is being used. Historic data are a great source to check how good a trading strategy is and what results it will give. Without actually risking their money in the market traders can check the strength and weakness of the trading strategy which they are using by applying them on available historic data with the help of automated trading system.
5)Reduced amount of time to be devoted
Traders and professionals sometimes do not have sufficient time to devote in the market. Automated trading is a boon for them. They just have to design rules and further give those instructions to the system.
These are some of the benefits of using an automated trading system.However, it has its own disadvantages like over optimization, complicated rules which can not be applied in code, improper coding, and testing. As per requirement, a trader can decide whether to go for automated trading or not. As like other trading practices using automated trading practice will also reflect your trade orders in Demat account which is opened with brokers or discount brokers.
