Since financial markets are very complex to understand, it requires effort and regular time spent. Hence, many people have developed smart trading systems. This is how automated trading systems emerged, which have grown in popularity over the past few years. With changing markets and technological advancements, automated trading is expected to continue to grow.
Automated Trading: Opening and closing positions without emotion
Automated trading uses software to open and close positions in financial markets. As an investor, you can use automated trading to perform in-depth technical analysis. Next, you configure the settings for your location. Some parameters include open order, trailing stop and guaranteed stop. Once these parameters are set, the trading process is managed from start to finish, meaning investors can spend less time monitoring their positions.
Automated trading setup allows you to open multiple positions quickly without emotional impact. All your location rules are already included in your upstream defined settings Some algorithms even allow you to use predefined strategies to trade based on trends.
To do automated trading, you first need to decide which platform to use and create a strategy. You can then place trades with a custom algorithm based on specific parameters, such as on the official Bitcoin Prime website. These parameters are usually what positions should be opened or closed, when they should be opened or closed, and the amount that should be bought.
For example, you can tell the algorithm to buy 100 shares of Apple when the 50-day moving average crosses below the 200-day moving average.
Automated Trading: Saving Time for the Trader
By using an automated trading system, you can execute orders quickly and efficiently by monitoring market prices. With this system, orders are executed when certain criteria are met; This allows traders to take advantage of certain technical events in the market.
Automated trading allows you to:
- Place orders can be scheduled at any time day or night. Therefore, you don’t have to plan your strategy according to your schedule.
- Use pre-established strategies to limit emotional impact.
- Analyze trends and opportunities through numerous indicators.
- Simultaneously execute orders in real time as automated trading eliminates the need to manually execute orders.
Robots handle about 7% of the world’s cash!
High frequency trading is where market orders are placed instantly in seconds. It is mainly Anglo-Saxon hedge funds and investment banks such as Goldman Sachs or Morgan Stanley that use this strategy.
About half of all transactions on the Euronext stock exchange are linked to high-frequency trading, a practice that did not exist in Europe 10 years ago. Market experts explain that “today it is the source of more than a third of all transactions on Euronext”.
The continued lack of volatility in recent years has called into question the THF fund’s business model, which is based on price evolution. Tab Group reported that revenue from the practice was less than $1 billion in the U.S. stock market last year. In 2009, these funds earned $7.2 billion through high-frequency trading, for example.
In order to continue operating, major players in the industry such as Virtu Financial and Sun Trading have been taken over by other companies. For example, KCG Holdings was bought by Virtu Financial.
A sudden return to significant volatility in financial markets indicates that this quiet period has run its course. This is due to the phasing out of ultra-loose Western monetary policy and related political unrest in recent times.
In addition to just high-frequency trading algorithms, market participants use robots in the financial markets. A Morgan Stanley study estimated that assets in smart beta trackers and quantitative funds nearly tripled between 2010 and 2017. The study estimated that these funds were worth about $1.5 trillion, or about 7% of total global investment funds.
High-frequency trading and robots to blame for the mini-crash?
Toulouse School of Economics and Autorité des marchés financiers, or AMF, high-frequency trading, or HFT, provides stocks with much-needed liquidity when the stock market is quiet.
It has recently been realized that in a volatile market, robots can increase volatility due to high frequency and algorithmic trading. Most organizations recognize that these practices can increase volatility. So we can say that the mini stock market crash is partially responsible for robots. However, this practice has also greatly reduced transaction costs.
Programming errors or computer bugs in the market can cause dramatic changes in prices. Dominic Ciolin says this has happened before because of problems with trading algorithms or traders’ computers.
This was seen when Knight Capital – now KCG Holdings – had a technical glitch on August 1, 2012. The issue caused 148 US stocks to fall due to Knight Capital’s high frequency trading services
A huge impact on individuals and manual trading
One of the biggest drawbacks of stock market automation is the loss of ability to process market information quickly. Individuals cannot react to information as quickly as an algorithm.
One takes about 0.35 seconds on average. By comparison, high-frequency trading can execute orders in a millionth of a second. So the robot has time to pass hundreds of orders before the human blinks. Several initiatives have been taken to remedy this.
In the US, the IEX exchange opened in 2016 and is considered a no-go zone for high-frequency trading. French stock exchange Euronext has long used “short-circuiters,” which temporarily suspend securities that fluctuate more than 8%.
However, these initiatives are still insufficient to adapt to technologies evolving much faster than regulators.