Pros and Cons of Automated Trading Systems


Trading is something that many people pursue, whether as a source of income or to strengthen their understanding of global financial markets. Either way, there’s a lot you can learn from the process.

Some traders are tapping into automated trading systems to enhance the experience and iron out niggles that can otherwise hinder the process. While there are undeniable risks associated with automation and AI, there’s also opportunity so long as we leverage it responsibly.

Here’s what you need to know.

Automated Trading System Explained

Beyond the initial panic of automation threatening to replace humans in their jobs, there’s scope for us to use it to our advantage.

We already use it without realising. Predictive text, automatic light switches and more have found their way into our day-to-day lives. But what exactly is automated trading?

Automated trading platforms use algorithms and allow you as the trader to create rules for trade entries and exits, which can be automatically executed through a computer. It’s been reported that more trades are generated through automatic trading systems.

Advantages of Using Them

A key advantage of automated trading is that it can take the emotion out of trading. Emotion can lead to a trader’s downfall and sometimes, you simply need to abide by rules of logic. Automated trading can help to implement discipline. For example, in volatile markets, your emotions might prompt you to act impulsively. However, in reality, patience through a long-term game may be the best option. As well as this, it can remove urges to push your boundaries and risk tolerance, unlike manual trading. You’ll likely input your exact instructions and indicate your risk tolerance beforehand to avoid complications.

Another advantage is that it’s a great way of saving time. Trading manually can be time-intensive and result in oversight where you may have missed something or misinterpreted a set of data. Automated trading systems allow you to input the logic and leave the rest up to the system. This can be particularly beneficial given the long-term nature of many investments. You need something that can tick over across a long period.

To refine the rules you want to set out, you can test them before implementing them. Reputable trading platforms like Tradu often have a demo function that allows you to test out trading processes and strategies before initiating them in real time.

If you want to diversify, you can also issue this demand into the system and it will choose a good spread of markets on your behalf, so you won’t have to spend time doing this yourself – and potentially overthinking the process.

When Not to Use Them

As with anything, it’s important to consider the cons too. At the end of the day, you’re placing a lot of trust into the system making the right decisions on your behalf, which can feel daunting. Technology of any kind is exposed to risks, such as mechanical failures.

And while it does take a huge amount of time pressure away from you, it’s still worth checking in every now and then. You’ll need to monitor the rules and functions and it’s wise to adapt these if you feel it is necessary.

As with any kind of trading, it’s also important to note that you aren’t guaranteed results as the market is unpredictable.

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