All financial markets including stocks and cryptocurrencies like Bitcoin, work with a set of information. This information and data are used to write the algorithms that have the ability to trade for the sake of anyone including companies and individuals. This process is called automated trading systems. The trend of using automated trading software is increasing all over the world, particularly in the developed countries. For example, in Wall Street, the use of such software is as high as 90%. This means up to 90% of stock trades are done by software and programs rather than the workers.
There are various advantages of using Automated trading software, however, they have some cons as well. Let’s discuss some of the pros and cons of such systems in trading.
The Pros
Following are some of the advantages of using Automated Trading Software.
Achieve Consistency
For most of the experts, the top most challenge in trading is to make a suitable plan and then execute it perfectly. Sometimes, the plan is perfect, but traders ignore the regulation/rules; and this results in the failure of the plan. No plan can indeed guarantee a complete win all the time because almost every trader faces loss at some point in their career. However, it is crucial to keep momentum even if he loses at certain points. Many traders left the trading for sometimes if they face losing a few times in a row. This thing creates hurdles in achieving consistency and the desired results.
However, consistency is now achievable by using automated trading software. These systems help the traders to set the right trading plan.
Mitigate Emotional Aspects
Emotions play a crucial role in taking decisions during trading. For these reasons, traders lose the temper and breach the rules. An automated trading system reduces the emotions during the trading and helps in following the plan. Besides all this, these systems help the traders who are afraid of taking bold steps. It also reduces the chances of overtrading. All these things make trading fair and acceptable to all traders.
Backtesting
Backtesting is a useful process to check the effectiveness of a specific trading strategy by going through the past data. It is a beneficial tool for the traders to analyze the success chances of a particular plan in ongoing trading prior to taking part in trading. This method is helpful for various instruments, including stocks and cryptocurrencies.
To under the backtesting well, take the example of predicting the benefits of trading gold futures. By using the backtesting technique, you can predict the future of gold by using the previous data. This way, traders can better plan a better trading strategy by analyzing the past data. All this is possible by using the Automated trading system.
Diversify Trading
Automated trading software allows the traders to either trade through more than one accounts or various trading plans and strategies simultaneously. This way, traders can diversify the investment can minimize the chances of any loss. However, better management of more than one trading platform is a hard thing to do. However, with Automated trading systems, it has become easier to manage more than one trading strategy.
The Cons of Automated Trading Systems
Technical Failures
Though, it seems very easy to trade automatically. For example, all you need is to build software, set trading rules, and watch how trading is going. However, this automatic trading system is very complex and sometimes risky as well. For example, if the internet connection is interrupted, the order to the trading market is not sent. it can create a mismatch between real trades and theoretical trade produced by the system.
Monitoring
it may seem a good idea to use automated trading systems, and you do other stuff instead. However, these systems also required proper monitoring. The reasons behind this monitoring of the system include technical failures. Some of the failures are connectivity issues, computer crashes, and power losses. To resolve these problems frequent monitoring is necessary.
The Final Words
Automated trading software is a game-changing concept when it comes to managing trade. Some of the advantages of using these systems are achieving consistency, mitigate emotional aspects, backtesting, increased speed for order entry, and diversify trading. However, all is not beneficial in these systems as they come with some cons as well. Some of these disadvantages are technical failures, overfitting, and monitoring requirements. But, as the technology is continuously improving, these issues will solve sooner or later. The only way forward is to adopt this automated trading software in stock trading in times to come.
