Automated trading systems allow traders to establish rules for trade entries and exits that can be automatically executed via a computer. They are designed to carry out the trader’s instructions without their involvement.
The advantage of these systems include convenience. If traders have an account with a forex broker that offers one, they can set it up with their instructions, regardless of their experience level. For example, professionals may use them to diversify their portfolios.
They also take the emotion out of trading – something that hinders many trading decisions. When emotions come into play, for example during volatile trading conditions, trades are still placed automatically. This also prevents overtrading.
The main downside of automated trading occurs when there are technical failures such as a lost internet connection or power failure. Traders should monitor their positions rather than hand over responsibility to the system.
TradingLounge director Peter Mathers agrees it’s difficult to consistently make money from the forex or indices market. His company bought several off-the-shelf automated trading systems, opened half a dozen accounts with Australian brokers and set them up with $60,000 in each.
“Some of them made money and some of them didn’t," he says. “But of course, if something worked all the time, they wouldn’t be selling it."
He agrees that a benefit of automated trading systems is the removal of emotional decision-making – an element of trading you need to overcome.
“The mechanical aspect of these systems is popular, as dealing with emotions around trading is something everyone needs to master."
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