Automated trading can make your trading strategies much more efficient. And if your trading strategies work well, your trading profits will increase automatically. Starting as a novice, everything that makes you a profit should be jotted down in a trading book, but wouldn’t it be nice to have this automatically done for you? Trading bots or algorithms do just that.
What Do These Trade-Bots Do?
If you can analyze the market to decide when to close or open a position, then a bot can be taught the same thing. The only difference would be that the bot would be much faster and accurate than you.
For a human mind to handle data from multiple sources (indicators and baskets) is too much. You’ll have to swiftly move from one screen to the other to check whether your indicator(s) has changed. Getting erroneous results is also a possibility if a human is looking at all the markets simultaneously.
Now the algorithmic trade bots are entirely different from simple alarms that you might already have in place if you’re not new to trading. This automated trading platform uses automated software or bots to handle orders and sound an alarm for your indicators.
How Can You Use Automated Trading Software for Your Needs?
Apart from being used in the general sense, the automated trading bots have some peculiar uses as well, such as:
Arbitrage Trading
Arbitrage is a trade where stocks, securities, currencies, and other commodities are simultaneously exchanged in different markets. But the catch here is that the price of these commodities is slightly dissimilar in different markets, which could be due to information mix-up or inefficient transfer.
These windows where arbitrage arises are tiny since the normalization of the price will occur at a certain point. Therefore, an algorithm that automatically detects and uses the arbitrage trading opportunity will fare better than a human at the same point.
Cost Reduction of Transaction
Since the algorithm will remove the involvement of any human mediator in between, it will reduce the cost per transaction altogether. Algorithms can break down orders into smaller pieces, which are then released in the market if there is a chance of making a profit. It is a less attractive facet of automated trading, but it is still something that can only benefit from the integration of automated systems.
Scalping Strategy
Scalping is similar to the arbitrage opportunities since this strategy also profits off small price changes occurring in response to a trade being executed. Scalping is where the trader has to follow strict closing strategies since there could be a possibility of incurring massive losses that wouldn’t compare to the small benefits arising due to market fluctuations.
Again, as in arbitrage, to avoid getting small gains in exchange for huge losses, the algorithmic trading bots can take advantage of situations like these.
High-Frequency Trading Strategy (HFT)
HFT is when groups execute huge transactions at very high speed or in a few seconds. Here, complex algorithms track different market conditions and opportunities where a favorable exchange might be present. Usually, traders who execute orders at a higher speed gain much more than traders who are slow.
HFT is also characterized by substantial turnover rates and order and trade ratios, where an automated system can come in handy.
Conclusion
There is no software out there that will give you 100% efficiency unless you somehow customize it for your needs and the markets you want to monitor. This is why seasoned traders feel better in building their automated trading platform. However, you should choose an advanced platform designed and managed by the experts to fulfill your trading needs.