Automated Trading Systems: The Pros and Cons

November 27, 2020 - Петр Мазайло

Automated, or automatic trading systems – are algorithms designed to conduct trading deals without the interference by a human being, in an automated fashion. While technically you don’t need to be present at the moment of deal conducting, you will have to check up on the system once in a while, so none of them are fully automated and independent.

However, the technical progress and trading software have come a long way. They bring good results and can generally be trusted by their creators to find and go through with purchases and sales of various assets. There are flaws, of course, and some are associated with technical malfunction. However, they aren’t so detrimental.

There are many types and even brands of automated trading system, so an investor can nowadays pick one that suits them better.

How do they work?

Automated trade system – is the software connected directly to an open access exchange of its owner’s choice.

In order to start working, a system needs to be calibrated. A trader puts in various indicators that will help find the most suitable deals, as well as limit the algorithm’s work in some aspects.

For instance, if you want just a small amount of shares for a specific price, you can ‘tell’ the system to only purchase, say, 100 shares of a required issuer, starting below the price of $35. As soon as it reaches the necessary amount, it’ll close all positions. The settings are various and numerous, you’ll have no problem relaying the software exactly what type, amount and quality of assets you need.

The programming

The indicators are just a tip on an iceberg. The advanced trading programs use different strategies of market situation reading. They take into account the archive data, intricate actions sequences, and so on. Everything from simple collections of indicators to such extensive programs is trading systems – some are just more sophisticated and effective.

If you’re apt at creating software, nothing should stop you from creating your own trading algorithm or building atop an existing system. All you need is a simple builder on the basis of any widely-accepted language (some are obviously more suited for the software of this sort).

Alternatively, you can buy or just download the software for free if you know the place. Most traders do just that. While the majority of American traders use some kind of trading software already, only a small minority uses their own creations. It’s much easier to just buy a trusty program.

However, you have to beware of scams. It’s all too easy to gain access to your personal information as well as money. Don’t download free software if you aren’t 100% it’s legitimate. Look for the user reviews, testimonials, read the terms and conditions. In short, do your homework.

The advantages

Trading with automated system is highly beneficial. Some reason you may name yourself, while other nuances only open up when you start trading.

  • Emotionless process

Emotions are great at keeping your zeal up and putting you back on your feet after a terrible loss. However, they bring more harm than good. The trading systems can process the existing price fluctuation examples and build their strategies on this information.

They know exactly when to buy. Certainly, they make mistakes, but given that they don’t panic, get angry, frustrated or anxious, a human investor is more likely to make mistakes.

  • High intellect

Most systems can calculate the possible outcomes in a few moments. They can remember thousands of movement sequences from the past and analyze the cues that lead to these changes. But most importantly, they never forget the plan.

While human investors never fully follow the trading plan or the limits that they themselves put in front of them, automates systems simply can’t do that. They are programmed to buy or sell exactly as told. Given the next benefit, this advantage is every more crucial.

  • Great performance

Stepping out of the boundaries of plan may be beneficial. Flexibility is by no means a bad trait. The majority of algorithms are far from flexible – they only follow the norms laid out before them. It’s true that by narrowing the volume you decrease the trading pace. However, good systems compensate for it with their fast performance.

Software reacts faster than human beings. Not only that, but they are able to keep track of several assets and even brokers all at the same time. It’s much faster than any living investor could ever do, and if it means you have to sacrifice the flexibility – so be it.

The disadvantages

Despite being used by the majority of online traders, robotic stock trading isn’t flawless. The software has developed enough to bring good results, but not enough to be trusted completely.

  • Technical issues

In terms of malfunctioning and misdemeanor, automated systems are still technically flawed. Certain systems may have their own flaws, but the automated trading in general frequently experiences freezes, performance drops and crashes. You can’t say for certain how dismal your case will be, because it all depends on a hardware-software relationship.

The systems may overload from the amount of work they’re tasked with. So, treat your system as any other piece of programming, otherwise it’ll stop working properly fairly soon.

  • Monitoring required

Automated systems are still far from being independent and self-sufficient. You can’t leave the algorithm running completely without your attention. It would be great to be able to do this, but the progress hasn’t made such a leap just yet. Once in a while you’ll have to check on the system progress, as well as system condition.

Additionally, you might keep one eye open on the market situation to see if system needs to be corrected and adjusted to the immediate changes. Systems largely can’t think for themselves, obviously. They can’t make decisions outside of the box you’ve put them in.

  • Limited capacities

Recent algorithms are fairly developed. They can help you create intricate plans and strategies for the trading ahead. However, systems as a whole still have limited capacities when it comes to creating automated trading plans. An overabundance of variables and data leads to poor decisions on system’s behalf.

The sophisticated thorough plans nearly always fail. You must give your system a space to breathe, if you put a million indicators, give it too much data (often conflicting) to process, it will most likely fail and stagger.

  • Fraud is a threat

It’s a relatively small problem, and not entirely system’s fault, but it needs to be addressed again nevertheless. It can’t be stressed enough that third-party systems are dangerous. Even if by all account the system is efficient and transparent, it may still contain several hidden tripwires to leech you off.

Buy from trusted sources or, better yet, create your own system if you can. If you can’t, pay someone to build you a legitimate trading system. This way you’ll know there aren’t any hidden daggers inside the code.


Mathematically, there are more disadvantages than there are advantages of working with automated systems. Realistically, the pros weight a lot more than cons. The positive effects of intelligent multi-task emotionless trading are simply splendid. They are still tainted a bit by the flaws, but the benefits mean much more.

If you consider acquiring a robotic trading system, go ahead and do it. After all, 70% of American traders use them already. You don’t want to be outshined and be at disadvantage, do you?

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