Automated Trading: How to Build an Effective System?

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Taking out the psychological element is one of the most important factors to keep in mind while trading. You don't want to fall victim to your emotions because that can break your entire trading experience. If you want to become a successful trader, then it's important to make sure that all your decisions are logically based on market analysis and real-time information. You can achieve it with the help of the best automated trading software.

In the last decade, technology has progressed by leaps and bounds, and modern computers can perform hundreds of millions of calculations in a single second. They have given the trading enthusiasts the power to automate their trading actions. Not only does it take out all the emotions and psychological elements, but it also mitigates the risk factor. In this article, we will discuss automated trading in detail and how you can use it to take your trading experience to another level.

Automated Trading: How to Build an Effective System?

What Should You Know About Automated Trading?

Automatic trading has multiple names, and it's also referred to as system trading, algorithmic trading, bot trading, mechanical trading, etcetera. Automatic trading allows traders to develop and set certain rules to enter and exit a trade. Depending upon the level of expertise, a trader can program automatic trading that not only enters and exits the trade but also monitors the latest market trends continuously. Moreover, an algorithm takes all the emotions out of trading and makes sure that it makes only the informed decisions on your behalf.

Learn More about The Automated Trading Software

Typically, automated trading systems need you to use the algorithm linked to a direct access broker. Additionally, the algorithm must follow all the rules issued by the broker for automated trading. Keep in mind that different automated trading platforms use different architecture, programming languages, etcetera. Here are some of the most significant pros and cons of an automated trading system.

👍 Pros

• Eliminates psychological element and emotions from trading

• Faster calculation customizable

• Allows for backtesting

• Allows multiple accounts

• Preserves your discipline

• Continuous trading

👎 Cons

• Mechanical failures are possible

• You’ll need to monitor the functionality

• You’ll require technical skills to understand and customize automated trading

• Can perform poorly in certain situations

  • Why Are Automated Systems Getting Hits?

    Why Are Automated Systems Getting Hits?

    Computers are way faster than humans when it comes to calculations and processing data. They’re designed to perform mathematical operations, and they also don’t get emotional. It allows them to make more precise and accurate decisions faster than any of us. Not only does it save time, but it also allows automated trading algorithms to trade in high volumes.

    Time-saving, faster and accurate calculations, free from human intervention and emotions, and customizable functionality are some of the most important reasons why automated trading is becoming more and more popular. One of the most important and probably the best reasons is their continuous trading because algorithms are running or computers don't get tired. It means people who are already doing a full-time job can earn a handsome amount of money with the help of automated trading.

  • Automated vs. Manual Trading

    Automated vs. Manual Trading

    As the names suggest, automated trading is done by a computer algorithm, and humans themselves perform manual trading. The following table will allow you to understand the difference between both of the trading styles.

Automated Trading Manual Trading

Completely removes emotion while making important trading decisions

In manual trading, our emotions overrule the logic many times

Easy and faster portfolio diversification

Takes time to build a diverse portfolio

Traders can test their automated trading software by using demo account faster

Traders can test their trading expertise with a demo account, but it takes more time

Algorithms take the historical event into account, which doesn't guarantee the future (because of change in volatility and market conditions)

Better decision making is possible if you understand the current change by ignoring the past

Creating an automated trading system can be a hassle

You only need to set up a brokerage account

It can keep you from learning new strategies

The learning process never stops, which is a great way to build knowledge

Less control on decision making

Full control while deciding what and when to perform a certain action

Less chance to identify what is working and what is not

Easy to understand the market to modify your strategy at the right time

You don’t need to continuously analyze the market and changing trends

You need to be highly skilled, and continuous acquisition of real-time information is required

Automated Trading

Completely removes emotion while making important trading decisions

Easy and faster portfolio diversification

Traders can test their automated trading software by using demo account faster

Algorithms take the historical event into account, which doesn't guarantee the future (because of change in volatility and market conditions)

Creating an automated trading system can be a hassle

It can keep you from learning new strategies

Less control on decision making

Less chance to identify what is working and what is not

You don’t need to continuously analyze the market and changing trends

Manual Trading

In manual trading, our emotions overrule the logic many times

Takes time to build a diverse portfolio

Traders can test their trading expertise with a demo account, but it takes more time

Better decision making is possible if you understand the current change by ignoring the past

You only need to set up a brokerage account

The learning process never stops, which is a great way to build knowledge

Full control while deciding what and when to perform a certain action

Easy to understand the market to modify your strategy at the right time

You need to be highly skilled, and continuous acquisition of real-time information is required

Automated Trading Software Rating: Best for Beginners

There are many automated trading software solutions out there that can help beginners a great deal. We have compiled a list of four of the programs that you can use to get started with automated trading right away.

MetaTrader 4: Overall Best for Beginners

MetaTrader4

MetaTrader4

Automated trading is one of the most powerful features that MetaTrader 4 offers. Not only does it allow you to create, backtest and apply your own trading strategy, but it also removes all the hurdles in trading and analytical activity. Easy to use, customizable and responsive interface, and a range of educational and research material, are some of the reasons why it's the best-automated trading software out there for beginners.

  • Is MetaTrader 4 Free?

    Yes, MetaTrader 4 is a free platform where you can trade commodities, indices, futures, CFDs, financial instruments, and cryptocurrencies.

  • Is MetaTrader 4 pass for beginners?

    Yes, MetaTrader 4 is great for beginners because it’s a simple and easy-to-use platform.

Tradespoon: Best for Learning

Tradespoon

Tradespoon

If you want to trade more intelligently, then Tradesppon can help you a great deal. The best thing about this software is that it uses machine learning and artificial intelligence to find the best trades for its clientele. Other than that, it keeps you updated even if you’re involved in automated trading.

  • Is Tradespoon Free?

    Tradespoon is not a free platform, but the best thing is its Demo Account that you can use for seven days for free. This way, you'll find out all the features and tools that it offers to make sure if it's the right option for you or not.

  • Is Tradespoon pass for beginners?

    The best thing about Tradespoon is that it offers free access to its video training library. It can help you a great deal, especially if you're a beginner and want to be involved in automated trading.

NinjaTrader: Best for the Beginners Interested in Futures and Forex

Ninja Trader

Ninja Trader

NinjaTrader is another leading platform that offers more than 100 technical indicators. It offers free trade re-enactments, backtesting, and progressed charting, which makes it a great choice for beginners. Moreover, it offers a wide range of useful, instructive material, and users can even request educational guides, training videos, etcetera.

  • Is NinjaTrader Free?

    Yes, NinjaTrader is a free automated trading software best for futures and forex trading.

  • Is NinjaTrader pass for beginners?

    NinjaTrader can certainly help beginners if used in the right manner. It offers tons of technical indicators and free educational and research material to its users.

Thinkorswim: Best for Active Traders

TD Ameritrade

TD Ameritrade

Although Thinkorswim is advanced trading software, but the fact of the matter is that its other features such as charts, technical indicators, educational material, and customization make it a handsome option even for beginners. Moreover, its algorithmic trading is one of its strongest areas that allows you to find the right market opportunities.

  • Is Thinkorswim Free?

    Yes, Thinkorswim is a free automated trading software that operates under TD Ameritrade brokerage.

  • Is Thinkorswim pass for beginners?

    Thinkorswim might not be the most suitable option for the beginner who is just starting out their trading journey. But if you know a little about how trading works, then it can be a good choice.

4 Steps to Build Your Own Automated Trading System

If you want to develop your automated trading system, then you can achieve it by following the four steps mentioned below.

  • Finding Provider

    Finding Provider

    The very first step to create your own automated trading system is to find the right provider. First, you'll need to define your trading objectives and goals, and then you can start your searching process. You can compare the automated trading features of multiple providers to make sure that you choose the one that'll allow you to achieve your trading goals.

  • Gather Ideas

    Gather Ideas

    Once you have selected the provider, you’ll need to start looking for ideas to create your automated trading strategy. There are several concepts that people follow, such as mathematical model-based, VWAP (Volume Weighted Average Price), TWAP (Time Weighted Average Price), POV (Percentage of Volume), Trading Range, etcetera. You can consult with experts regarding such ideas to make sure that you choose the approach that suits you the best.

  • Backtesting

    Backtesting

    The third and probably the most important step is to backtest your strategy. Whether you’re building your own automated trading system or have chosen to work with an existing one, backtesting will allow you to understand how your strategy will work without risking your capital.

  • Risk Management

    Risk Management

    No trading experience can be profitable without managing the risks properly. The most common and also effective way to manage risk is to figure out an effective stop loss. It allows you to exit the position whenever its price drops below a certain point. Moreover, you should also set up the right leverage amount for your trading portfolio. Lastly, avoiding risky periods with the help of lending indicators and understanding VaR (Value at Risk) can also help.

Brokers for Automated Trading Rating

Broker Software Best for

FxPro

Software:

MT4/MT5

Best for:

Automated Forex Trading

RoboForex

Software:

R Trader

Best for:

Strategy builder

eToro

Software:

CopyTrader

Best for:

Copy Trading

Interactive Brokers

Software:

Interactive Advisors/IB APIs

Best for:

Automated Stock Trading

1

FxPro (MT4/MT5) - Best for Automated Forex Trading

FxPro

FxPro

FXPro was founded back in 2006, and currently, it's serving traders and investors as one of the leading online brokerages. It's best known for its MT4 and MT5 worldwide, and it's the top choice for Forex traders. Regardless of the level of your expertise, you can use the SuperTrader platform by FXPro for automated trading. This platform will suit you best if you are interested in automated Forex trading where you only need to open your account, and the rest happens automatically.

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2

RoboForex (R Builder) – Best for Strategy Building

RoboForex

RoboForex

RoboForex is an established and one of the leading online brokerages that allows you to trade a vast array of assets. It's by far the best online brokerage for strategy building. That's because it offers a dedicated platform R Trader, which you can use to build your automated trading strategy within minutes. The best thing about R Trader is that you don’t need any technical skills to program or code your strategy.

3

eToro (CopyTrader) - Best for Copy Trading

eToro

eToro

eToro is yet another great choice for automated trading which is designed with a solid user interface and tested algorithms. It offers a dedicated CopyTrader environment which makes it the best platform for automated copy trading. If you want to find great automated trading opportunities, then eToro’s CopyTrader platform can help you a great

4

Interactive Brokers (Robo-Advisor/IB APIs) - Best for Automated Stock Trading

Interactive Brokers

Interactive Brokers

Interactive Brokers is one of the most popular brokers available in the market that offers numerous national and international opportunities for trading. When it comes to automated trading, you can use its Interactive Advisors platform to manage your automated trading. You can also build your own automated trading system by using IB APIs that offer an easy integration process.

Summary

Summary

Automated trading can undoubtedly improve your trading experience. It can help you to be involved in online trading if you can't spend a whole lot of time in front of your computer to actively analyze market trends to make informed decisions. Moreover, it also keeps your trading from your emotions as every decision is made only on the basis of real-time calculations and logic. However, it's important to learn the basic concept of trading, and even the most advanced platforms will require pinching and fostering in different marketing situations. We hope that this guide will help you to get started with automated trading effectively and efficiently.

Automated Trading Reviews

FXPro:

FXPro is one of the most reputable online brokerages, which is regulated by multiple world-famous authorities. Its SuperTrader platform is one of the best out there for automated trading. The best thing about this platform is its no-commission policy for in-house strategy investing, and it also doesn't charge any fee for account maintenance. However, the customer will need to pay a performance fee (5 percent) to the strategy owner after generating profit. This fee is deducted automatically, and the user can remove it from his/her portfolio anytime. This platform is best for automated Forex trading.

Clare Arthurs

Clare Arthurs, 28,

London


Roboforex:

Roboforex was founded back in 2009, and it's one of the leading online trading platforms out there. It offers one of the fastest CFD, ETFs, commodities, Forex, indices, and stocks trading experiences. Other than that, it also offers R Trader Automated Strategy templates that you can use to utilize financial market data. It provides the users with much flexibility to make, backtest and modify automatic trading strategies at will.

Blak Scott

Blak Scott, 32,

Cape Town


eToro:

eToro is one of the industries leading online trading brokers that offers a dedicated platform CopyTrader for automated trading. It's by far the best platform available for automated copy trading, which is specially designed for online trading in the foreign exchange market. In my understanding, it’s the best platform for the people who are looking to analyze the latest market trends automatically to find the best available trading opportunities.

Dorothy Barnes

Dorothy Barnes, 37,

Cincinnati


Interactive Brokers:

Interactive Brokers platform is the best online trading broker when it comes to automated stock trading. It offers a dedicated platform (Interactive Advisors) that specializes in the management of automated trading with the help of a robo-advisor. It also offers IB APIs, which are easy to integrate and come in handy for those people who want to create their own automated trading algorithm. Moreover, Interactive Brokers offer over 70 different portfolios, which are created with the ETFs and stocks mixture.

Colin Wilson

Colin Wilson, 45,

Newcastle

FAQs

Is automated trading profitable?

Yes, automated trading can be profitable if you execute it properly. There are two things that you need to keep in mind, which include validation methods and proper backtesting. Other than that, you must also apply the right risk management methods.

Is automated trading legal?

Yes, automated trading is completely legal. With that said, anything which is illegal under normal circumstances will also be illegal in automated trading.

What percentage of traders use automated trading?

According to CNBC, about 80 percent of the trading is on autopilot, which means that 80 percent of traders use automated trading.

Is Automated Trading foolproof

Just like any other trading style, automated trading still involves risks which means it’s not foolproof. However, you can minimize the risk factor by choosing the right provider and using the right algorithm to make informed decisions.

Team that worked on the article

Peter Emmanuel Chijioke
Contributor

Peter Emmanuel Chijioke is a professional crypto, blockchain, NFT, Metaverse and Web3 writer, and a contributor to the Traders Union website. With a background as a top programmer and a computer science graduate, Peter has been writing articles related to crypto, blockchain, and related technologies since 2018.

Dr. BJ Johnson
Dr. BJ Johnson
Developmental English Editor

Dr. BJ Johnson is a PhD in English Language and an editor with over 15 years of experience. He earned his degree in English Language in the U.S and the UK. In 2020, Dr. Johnson joined the Traders Union team. Since then, he has created over 100 exclusive articles and edited over 300 articles of other authors.

The topics he covers include trading signals, cryptocurrencies, Forex brokers, stock brokers, expert advisors, binary options. He has also worked on the ratings of brokers and many other materials.

Dr. BJ Johnson’s motto: It always seems impossible until it’s done. You can do it.

Mirjan Hipolito
Cryptocurrency and stock expert

Mirjan Hipolito is a journalist and news editor at Traders Union. She is an expert crypto writer with five years of experience in the financial markets. Her specialties are daily market news, price predictions, and Initial Coin Offerings (ICO). Mirjan is a cryptocurrency and stock trader. This deep understanding of the finance sector allows her to create informative and engaging content that helps readers easily navigate the complexities of the crypto world.