Since several traders might be unaware of what auto trading is and how it works, this informational article aims to answer a lot of unanswered questions about automated trading that traders, especially beginners, might have in order to help them understand the basics. Furthermore, it aims to give traders a direction in which they can move to practice auto trading and hence, decide if it is beneficial for them or not. In addition, the advantages and disadvantages of using an automated trading software for trading Forex, CFDs or Cryptocurrencies are presented so that traders are aware of not only the benefits of using it but also, to be notified about the risks involved.
Moreover, an example of trading via an auto trading software is presented through a step by step guide by showing screenshots of an actual trade on an auto trading platform. As a result, beginners and advanced traders can experience what it is like to place a trade with a trusted and regulated auto trading broker. Thus, traders can rest assured when making a deposit as well as experiencing the best auto trading software possible.
What is Auto trading?
Auto trading refers to the automated Forex, CFDs or even Cryptocurrency trading systems which are also known as mechanical trading systems or algorithmic trading, automated trading or system trading. These systems with the help of a computer can be programmed and be automatically executed by allowing traders to set precise rules for both trade entries and exits.
These trade entries and exits have rules that are based on sometimes, simple conditions like a moving average crossover or even be based on much more complicated strategies that require a complete understanding of the programming language which is precise to the user’s trading platform or the expertise of a qualified programmer. Generally, a software linked to a direct access broker is required and any specific rules need to be written in that platform’s proprietary language.
In other words, traders usually follow all the relevant and credible news as well as the market changes with the intention of identifying opportunities by using technical analysis and market indicators. In order to do so, a great knowledge on financial markets and also, on technical analysis is required by traders if they wish to be successful. Since this takes a lot of time both to collect data, analyze it and then, draw conclusions, traders can make use of a trading robot which is essentially, a different approach than the one described above.
In this instance, trades are still placed with a trusted and if possible, regulated Forex, CFDs or Crypto broker but instead of trying to collect data and analyze it themselves, they use an automated trading software instead, which does all the analysis itself in order to identify trades for its users. The software performs the analysis by making use of its sophisticated algorithm and hence, delivers the trade straight to its users who can decide to place the trade manually or automatically depending on the auto trading software.
Traders should practice auto trading with a trusted Forex, CFDs or cryptocurrencies broker that offers a free demo account. By doing so, traders, novice ones especially, can test the waters by placing a few trades before they can decide whether or not auto trading is for them or not. Consequently, practice and educate themselves on how they can incorporate auto trading into their trading habits.
What are the pros and cons?
There are several advantages of using an automated trading software. For instance, the more obvious advantage is the fact that traders do not need to do all the research by following news, collecting and analyzing data, identifying trades and coming up with a strategy. This way they save time and money if the software is correct.
In addition, by using and following the suggestions of a software then, the trader’s emotions are cut out. By doing so, it becomes less personal and easier for traders to stick to their strategy and also, by keeping their emotions in check, traders will avoid the urge to question the trade or hesitate to place the trade. Moreover, this preserves discipline since discipline is sometimes lost due to fear of taking a loss or the desire to make a little more profit from a trade.
Nevertheless, there are some disadvantages that come with using it as well. For example, it is possible for a trade not to be sent to the market if the trade resides on a computer and not on a server if the internet connection is lost. What is more, discrepancy between the theoretical trades generated by the strategy and the order entry platform component that turns them into real trades can exist. For this reason, as already advised, traders should practice with a demo account or with small size trades until they familiarize themselves with auto trading before switching to a real account or to large size trades.
How to place a trade on an auto trading platform?
In this section, a short step by step procedure is presented to educate traders on how to trade with an automated trading platform. It should be noted that auto trading might be related to expert advisors or even Meta Trader plugins which do real auto trading in Forex too. However, for this example the XBT News Trader broker is chosen since it is quite popular among traders and thus, quite easy for novice traders, in particular, to follow. Traders using XBT News Trader should note that even though it tracks all relevant news reports, collects data, performs analysis, identifies trades on its own; it does not however, place the trade. Traders need to manually go into the assigned broker and actually, place the trade themselves.
1st Step: Register with an auto trading broker such as XBT News Trader
Before being able to use the auto trading software traders need to register. Then, a broker is assigned to the trader where they need to go to their website and make a deposit.
2nd Step: Decide which recommendation to act upon
As it is shown in the screenshot below, the software differentiates the positive from the negative news in order to give signals to the traders that they can then, act upon. For instance, if there is a clear signal, traders can choose to place a trade or on the other hand, decide not to place the trade if the signal is not that clear.
3rd Step: Place the trade
Lastly, traders need to go to their assigned broker’s website and place the trade since the software does not do that for them. Moreover, they can place as many trades as they believe that the signals are conclusive. Similarly, they can choose to avoid all the inconclusive recommendations made by the software.
To sum up, this article has presented the basics of automated trading as well as the advantages and disadvantages of it. In spite of the fact that auto trading appears tempting enough for several reasons as explained in the article, auto trading cannot be a substitute for carefully executed trading since mechanical failures can happen as well as these systems require monitoring in order to minimize the risk of mechanical failures and also, to correct any quirks of the system such as duplicate, missing or errant orders.