Monday, April 14, 2014

The Pros And Cons Of Automated Trading Systems

The current era of trading is based on Automated trading system(ATS). Almost all the professional traders around the world use ATS for trading.

     Automated trading systems, allow traders to establish specific rules for both trade entries and exits, that once programmed, can be automatically executed via a computer. Depending on the specific rules, as soon as a trade is entered, any orders for protective trailing stops and profit targets will automatically be generated.

   ATS provides many advantages to traders, but also carry few disadvantages with them. Few of them are:-

Advantages:-

(1) Minimize emotions:- ATS minimize emotions, since trade orders are executed automatically once the trade rules have been met, traders will not be able to hesitate or question the trade.

(2) Ability to backtest:-  Backtesting  strategies on a historical data, allows traders to find out how much efficient a strategy is.

(3) Preserve discipline:- Because the trade rules are established and trade execution is performed automatically, discipline is preserved even in markets.

(4) Improved speed:- Since computers respond immediately to changing market conditions, automated systems are able to generate orders as soon as trade criteria are met.

Disadvantages:-

(1) Logic correction:- Logic must be tradable, in live market and it cannot be checked by backtesting.

(2) Coding:- It is difficult to define every rule in coding language due to limitation of programming.

(3) Order execution:- It faces difficulty sometimes in order execution, in between of market order and stop order.

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