Definition: Automated trading is a method of participating in financial markets by using a program that executes pre-set rules for entering and exiting trades. As the trader, you’ll combine thorough technical analysis with setting parameters for your positions, such as orders to open, trailing stops and guaranteed stops.
Understanding automated trading
Auto trading enables you to have maximum control over your portfolio and take advantage of as many potential opportunities in the market as possible, while keeping risk at a minimum.
You can carry out many trades in a small amount of time, or you could build a sophisticated system that executes precise entries & exits only when pre-set conditions are met for the asset(s). Parameters can range from more basic rules like volume, moving averages, etc conditions being met, or through coding — parameters can contain significantly more logic such as mean reversion or statistical arbitrage techniques.
Many hedge funds simultaneously deploy dozens of algorithms into the market, and data shows that funds which utilize automated trading software (sometimes called quantitative hedge funds, depending on the extent of their use of algorithmic software) typically outperform their competitors who rely on human decision.
How does automated trading work?
First, you will choose a platform and set the parameters of your trading strategy. You’ll use your trading experience to create a set of rules and conditions, and then test your theory on historical data to determine how successful it would have been in the past. Once you’re ready to deploy into a demo or live account, your custom algorithm will apply the criteria to place trades on your behalf.
These conditions are normally based on the timing of the trade, the price at which it should be opened and closed, and the quantity.
example, ‘buy 100 Apple shares when its 50-day moving average goes above the 200-day average’.
The automated trading strategy that’s been set will constantly monitor market prices and any other parameter you set, and trades will automatically be executed if predetermined conditions are met.
The aim is to execute trades more efficiently, taking advantage of specific technical market events while minimizing emotion by only functioning through predetermined logic.
What are the benefits of automated trading?
With automated trading, you can:
- Fit your strategy around your schedule — execute trades automatically, day or night. You can enjoy your life not being glued to watching charts and worrying about trades!
- Reduce the impact of stress through sophisticated investing strategies
- Identify new opportunities and analyze trends with a wide range of indicators
- Ability to select between short/medium/long-term strategies across multiple asset classes
- Execute multiple real-time trades simultaneously and remove manual execution
What platforms can you use for automated trading?
Our goal is to remove the barrier of entry for individual investors to access automated investing.
We’ve built a platform that enables any trader, regardless of if they are unsure how to code or have a smaller account size, to access and develop automated investing strategies and even get paid from helping other traders profit.
Users can develop automated trading software in a zero code environment and browse the quant marketplace to utilize machine learning, algorithmic, and copy trading software.
Simply connect your existing portfolio and select which strategies you want to automate with.
Orders are filled using fully encrypted market-leading technology, ensuring you receive the safest and fastest possible execution on every trade.
Code your own expert trading algorithms, create indicators, and place a range of orders. Plus, import Expert Advisors (EAs) to help find opportunities according to your pre-defined parameters.
EAs can either notify you of an opportunity or open a position automatically.
Head over to Alpaca’s trading platform and execute your own coded trading algorithms and place a range of orders for stocks (and soon to be cryptos!) Alpaca is a newer company that’s enjoyed explosive growth for their first of its kind full-API trading platform. Even if you’d prefer to use Alpaca’s platform for order execution, you can still develop and test your strategies on Surmount, then download the Python source code.
Build your own platform and create advanced trading solutions from scratch though coding your algorithms from the ground up.
Who typically trades with APIs?
Trading with APIs is extremely popular with institutions such as hedge funds and registered trading firms, and as access becomes increasingly available, retail traders are also beginning to rush into the automated trading space. That’s because APIs offer access to more advanced programs that can remove the guesswork out of trading and act solely through a series of preset conditions that have been proven to be historically profitable.
Even if you want to continue executing the majority of your own trades, automated trading can prove to be an effective tool in many ways for your portfolio. Whether it be a matter of consistently mitigating risk, increasing activity, monitoring positions, taking profits/losses, or when to buy the dip — an automated trading system can help to maximize profits while minimizing the stress that can be associated with financial markets.