The Pros and Cons of Automated Trading

Are you considering automated trading?

Or are you wondering what it is and why you should consider using it? If so, you have come to the right place.  “Automated trading” is a pretty vague term, to be honest, but it is also pretty self explanatory. Automated trading systems are systems that investors set up to conduct trades automatically.

This can mean a lot of things. For example, many brokers offer tools that will let you automatically execute a trade if a price rises or falls by a certain amount or percent. Let’s say you have 1,000 shares of Acme Motors and you bought them at $10 dollars a share. You’re hoping that prices will rise to $15 dollars and then you plan on selling them. You could set up an automated stock trading system to automatically sell off your stocks if prices reach this point.

Why would you do such a thing? Perhaps you don’t have time to watch your stocks all day. Or maybe you’re planning on going on vacation and don’t feel like watching markets while you’re at the beach. Automated trading software can watch your stock portfolio even when you don’t have the time to do so. For this reason, many professional investors use automated stock trading systems.

By the way, besides price increases, you can also set up a system to sell your stocks if prices drop to much. Perhaps you bought stock in a volatile stock and you’re worried that prices will drop when you’re not looking. If so, you could consider  setting up automated indicators to execute a trade when prices drop too much. This could be useful if you have a volatile stock in your portfolio that you believe has a lot of upside, but which is also high risk.

Automated Trading Can Get a Lot More Complex

Some investors go far beyond simple trading systems that will execute trades at certain prices points. Some investors actually set up entire automated algorithms that will handle all or most of their trading automatically. These systems will monitor a wide range of factors, from financial reports to weather to price movements, to execute trades. By setting up such systems, traders could theoretically park their money in an account, set up a trading system, and watch their portfolio grow, at least if the algorithms are set up right.

Automated Trading vs. the Human Trader

These automated trading platforms are able to react much faster than a human trader would be able to. Even the fastest trader will need several seconds to execute a trade, and likely minutes, if not hours, to analyze information. Meanwhile, an automated trading system may be able to execute a trade in one second or less. Further, automated systems will be able to trade 24 hours a day, while a human investor will need to sleep, eat, and otherwise not pay attention to markets for several hours a day.

The 24 hour trading ability makes automated stock trading systems a great choice for people looking to trade in international markets. Times are different around the world, and while it might be night in your location, it’s morning in another location. Even if your day is ending,  someone, somewhere is just getting their day started. Automated stock trading can help you trade every hour of the day. Sleeping? In the shower? Heading out to dinner? With automated trading software it doesn’t matter because software doesn’t need to eat or sleep and can trade 24 hours a day, seven days a week.

In a sense, stock trading software can make your trading “super human.” With global markets constantly evolving and changing, you can use automated services to monitor your stocks even when you are not around. At the same time, you won’t be surrendering complete control of your portfolio. With automated stock trading software, you can still be in charge of when and why trades will be executed. You can set the parameters. Most “automated” programs still give traders a huge amount of control and oversight.

With some stock software platforms, you will have to trust a sort of “black box”. Even then, however, you will still have control of whether or not to invest and how much to invest. Either way, and no matter your trading strategy, you should consider various software and automation solutions to help empower your portfolio. Whether or not you choose to adopt any platforms is up to you, of course.