Trading is quite a popular hobby amongst working professionals nowadays. It exposes you to the Stock Exchanges and gives you a better understanding of companies and their quarterly performances. It is also a great way to increase disposable income if you know how to play the game right.
However, for working professionals who engage in trading, there is limited time available. It helps to have a great platform where you have to spend only a short amount of time to execute orders. Trading with banks is perhaps not a wise option considering the procedures involved and overall time spent.
Let us introduce Automated trading systems. As the name suggests, such systems involve a high degree of automation, either through robotics or AI. They are also referred to as Algorithmic Trading Systems or Mechanical Trading Systems. They aren’t a new concept by any means. In fact, National Stock Exchanges use such systems predominantly.
By definition, such trading systems can execute repetitive tasks at great speed compared to humans. Historic data is used to train their algorithms to generate an expected output. There is significant volume of back testing involved. If you are an individual who trades in multiple exchanges simultaneously, this should be quite useful.
There are quite a few options available in the market, with TradeStation and NinjaTrader leading the way. They have a certain set of rules regarding order entries and exits. In addition, precautionary measures such as stop losses are built in, ensuring that the process can be controlled to a degree.
This post is by no means a validation from us for automatic trading systems. There are advantages and risks associated with them. Being a technology enabler in general, we encourage people to give these a try bearing in mind the associated risks.
Advantages include the fact that there is no emotion involved. Trading is a mentally stressful process and can lead to exhilaration or deep frustration in humans. As a result, you could end up making the wrong choice. With an algorithm, you don’t have to worry about that. Additionally, diversification is much easier when you have an automated system taking care of your entire portfolio.
However, bear in mind the associated risks. Firstly, the simplest one, but perhaps the most dangerous. Connection failures can result in a trade not being properly executed. Additionally, back testing can result in too much “fitting” to past data, which may not be the reality. Such risks must be mitigated as best as possible.
Trading is a sector that requires a lot of knowledge. Keeping in mind the time involved and the sophistication in terms of learning, automated trading platforms are one way to approach trading for the busy professional.