Automated Trading: Pros Vs. Cons

By  //  June 15, 2021

Automated trading can be beneficial to both novice and seasoned traders. Learn why and why not this type of day trading comes recommended.

Automated trading and its pros and cons

To auto trade or not to auto trade, that is the question. However, ideally, you should probably do a bit of both; see it as the best of both worlds. If there’s one sure thing you should know off the bat about automated trading, is that it’s no silver bullet or Holy Grail.

In this competitive world of finance, there is no such thing, and if there was,  odds are it would be a guarded secret. Having said that, automated trading certainly has its place within the trading community and provides novices and seasoned traders alike with a slew of benefits. Then of course there’s also the ongoing improvement of trading technology, and tied into this is its amalgamation with artificial intelligence.

What exactly is automated trading software

Often referred to as forex trading robots, automated trading systems, put simply, allow day traders to have less involvement in various facets that make up the entire trading process. 

By electing to use an automated system, traders are capable of focusing on other applicable tasks or ones that are not. However, generally speaking, a forex trading robot lets the trader establish criteria for entry and exit points within the markets that he or she is trading in.  Automated trading software also lets one setup money management rules, which can prove to be quite cost-effective.

All this  information is programmed into the system after which it will then make decisions on the behalf of  the trader. The range of instructions that can be stored within the automated trading software’s memory can range from the simplistic to the sophisticated,  and thanks to the fact that trading has become a lot more common place, automated trading is highly recommended for new-comers.

The Pros

There are a fair amount of valid reason to go the automated trading way, key amongst which would be the removal of emotion. Human emotions can greatly influence a trade outcome and not necessarily for the better.  Once the trading parameters have been set in place, traders will find it easier to stick to the course without deviating. Automated software can also make it easier to reach a decision and hence an outcome, as well as curtailing the want to overtrade.  Then there’s backtesting, which involves but it not limited to the use of tech combined with forex guides.

This process allows a trader to look at historical data, to implement it into the software, and to then run tests and simulations to prove its effectiveness.  Automation works on exact rules and this in turn feeds into the trader’s own discipline – discipline that can be upheld even in the most volatile of markets.  

It also eliminates certain margins for errors – exact trade amounts will always be adhered to.  Another major benefit of going the automated route is the ability to do so much more at once.  Multiple account trading is possible as is the implementation of various strategies which in turn can serve as a hedge against losing positions. 

The Cons

While equipped with quite a few benefits, the business of automation software is not without its drawbacks. For instance, if one’s internet connection is lost, trading instructions might not be sent through – resulting in a potential loss.  There’s also the possibility that what’s been theorized might not workout in practice; in other words, the strategy generated by the software might not yield any returns. It’s advisable to start with small trades. 

Even though automated trading works by itself, it still requires monitoring and thus cannot completely be left to its own devices.  One could experience a power failure or your computer could crash.   Also, no software system is infallible – all experience minor glitches – which could result in duplicate trades for instance. Hence, regular monitoring is an absolute must.