Auto Trading - Using Automated Trading Software in 2021

May 10, 2021 08:00 UTC
Reading time: 26 minutes

The concept of auto trading may sound to many like a dream come true. Who wouldn't be excited at the prospect of a computer system that enters and exits trades automatically and potentially makes profit with little input from the user? But before you get carried away with the idea of automated trading software, there are some key points that need to be addressed.

What exactly is automated trading software? How does it work? Is it really possible to have a system that guarantees profits? In this article, we answer these questions, list the various advantages and disadvantages of automated trading and much more!

A Guide to Automated Trading Software

What is Automated Trading Software?

In case you've been asking yourself, 'What is auto trading?' or 'What is an automated trading system?', you're in the right place. Automated trading software allows traders to set criteria which determine both entry and exit points in the financial markets, as well as making rules for money management. Once the system is programmed, the desired market is monitored and trades are made automatically.

The entry and exit conditions set by the user can range from simplistic instructions to much more sophisticated and complicated strategies. The latter of these demands a thorough appreciation of the programming language utilized by the relevant trading platform.

These days, automated trading software can be used to trade a variety of markets, such as shares and Forex, and is accessible to anybody with a computer and a working internet connection. Given that a lot of people who start trading usually have limited knowledge of the trading process or the financial markets, the popularity of these systems comes as little surprise.

Auto Trading - Expert Advisors vs. Forex Robots

When we talk of automated Forex trading systems or auto trading tools, we can distinguish two separate categories of auto trading tools: Expert Advisors (EAs) and Forex robots, or auto trading bots.

Both EAs and Forex robots are created by skilled and experienced professionals who write algorithms to analyze market trends and identify entry and exit points in the market.

Where the two differ, is in the placement of the trade. EAs do not automatically place market orders on the trader's behalf. Instead they provide the user with trading signals. The user then takes the decision whether or not to open, or close, a position based on the information. Forex robots, on the other hand, deal with the entire process automatically. That't a basic summary of the different types of auto trading tools available.

What is Automated Forex Trading?

What is auto trading in Forex? The best automated Forex systems are designed to analyze market activity and currency price charts. The software is configured to identify key trading signals, such as spread discrepancies, price instability patterns, relevant news that might affect transactions and fluctuations in currencies. All of this is performed in conjunction with the actual trading as well.

There are some trading platforms which have built in strategy building "wizards". These allow traders to create a set of parameters using common technical indicators as a basis to be automatically traded.

For example, a trader may establish that a short trade should be opened once the 25 day moving average (MA) crosses under the 100 day MA (or vice versa), on a 5 minute chart of a particular market. Traders can also choose the type of order that will be placed and exactly when to place the trade (e.g. at the close of the next bar).

Many traders look to program their own trading strategies and customized indicators, or, if they are not fluent in their platform's programming language, enlist the help of a programmer. This approach requires more effort than simply using the trading platform's wizard, however, it also provides a larger degree of flexibility and can achieve a more rewarding end product.

For those thinking of programming their own strategy, it must be borne in mind that most automated trading systems require the application of software that is linked to a direct access broker.

The criteria for any automatic system must also be written in the programming language of the specific trading platform. For example, MetaTrader 4 and MetaTrader 5, the most popular trading platforms, use the programming language MQL. However, the NinjaTrader platform uses the NinjaScript programming language.

Once the rules for a system have been set, the software monitors the markets looking for buy or sell opportunities based on the specific trading strategy. Once a trade is entered, orders for take profits, stop losses and trailing stops will be entered automatically. In fast moving markets, this immediate order entry could be the difference between a small loss and a disastrous loss, if the market moves unfavourably for the trader.

Can Forex Robots and EAs Lose?

Automatic trading software can be a valuable instrument for a trader, however, the majority of robots only trade within a certain range. They make a certain amount of pips inside this range, which usually falls within the slowest time on the FX market, and they tend to set a fairly low target and may not use a stop loss.

In this way, automated systems can make profit in a restricted time period, although it may be a small profit.

In the event of an unanticipated and strong market movement, the modest profits which have been made can be obliterated. You may see a robot advertised as the best Forex trading robot, and it may be able to make a profit during a positive trend, however, during more uncertain time periods, money may be lost.

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Advantages of Automatic Trading

Forex trading is considered as one of the premiere markets to trade, and an automated Forex trading system can help by instantly executing all Forex transactions. With the help of such software, the trader will only have to switch on the computer and let the software take care of placing trades.

Let's have a look at some of the main advantages of using automated trading software.

Automatic Trading Is Emotionless

Arguably the largest and most obvious advantage of using automated trading software is the removal of human emotion. An automated system is programmed to enter and exit positions in the financial markets once certain criteria have been met, removing any emotion (negative or otherwise) from the decision making process.

This allows traders to keep their discipline and stick to their trading plan, whatever that might be, as the system will ensure it is followed precisely and consistently. This means that traders do not have the opportunity to hesitate and question a particular trade due to fear of taking a loss.

It is important to understand that there is no trading plan or strategy which will win all the time. Losses are part of trading and it goes without saying that they can be emotionally draining. An automated system has no emotion and, therefore, losses will not lead to a deviation from the overall plan.

With the same logic, automated systems prevent traders from overtrading, entering trades that do not fit within their plan or holding out for extra profit through greed.

Accessibility

Automated trading software can be, and is, utilised by beginners and professionals alike, both of which may find these systems helpful with decision making. Software is available in varying levels or price and sophistication. The manufacturers will also provide a demonstration model, allowing traders to familiarise themselves with the product prior to implementing it within their live trading account.

Ability to Backtest

Prior to unleashing an automated system into a live environment, backtesting allows traders to test the system's criteria on historic price data. This practice permits traders to make improvements to their strategy and also gain an understanding of the expectation of the system (i.e. risk vs reward).

Order Entry Speed

The financial markets can move quickly, therefore, the speed at which a position entered or exited can have a big impact on the success of a trade. Automated trading software can respond immediately and place orders (complete with stop losses and take profits) as soon as the predetermined criteria are satisfied.

Diversification

Automated trading software presents traders with the opportunity to trade over multiple accounts and different markets whilst using a variety of strategies simultaneously. Diversifying in this manner can allow traders to spread their risk over different markets and instruments as opposed to putting all their eggs in one basket, so to speak.

Disadvantages of Automated Trading

Automated trading made appear easy on paper, however, the reality does not always reflect this. Despite the advantages we have listed above, using automated trading software also carries certain disadvantages which you should be aware of.

Automated Systems Need to Be Monitored

The most natural reaction to learning about the existence of automated trading is to think that you can simply turn on your computer and then leave your desktop for the rest of the day, allowing the system to run alone. However, the reality is that automated trading systems need to be monitored.

This is primarily due to the possibility of technical failures such as a loss of internet or computer malfunctions. However, it is also possible that the software itself could malfunction, creating duplicate orders or missing them altogether. Unfortunately, automated systems are not infallible. The monitoring of the system allows traders to quickly identify issues and rectify them as required.

Over-Optimisation

As we mentioned earlier in the article, no trading strategy will result in winning trades every time. However, some traders may erroneously believe this to be the case. If this is the case, when backtesting a strategy over historical price data, it is possible that the trader will "over-optimise" their strategy.

This implies that the trader has "perfected" their strategy for all the unexpected occurrences which took place historically in the financial markets. However, when an over-optimised strategy is implemented into a live market, it could prove unreliable in the light of future events.

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Best Automated Trading Software : Buy or Build?

Purchasing a piece of robot trading software gives you quick access to automated forex trading, while building your own robot trading software allows you to customize your robot to your specific preferences. Auto trading software can be expensive and risky.

At the same time, building your own auto trading software requires time, energy and vast knowledge of the programming language and it still may be flawed, which can result in unexpected losses.

Regardless of whether you choose to buy or build auto trading software, it can help to know the basic aspects to consider in either case.

Market and Company Data Availability 

All automated trading software are built to react to data and price quotes. Some take into account company fundamentals as well, such as P/E ratios and earnings. This data should be accessible as a part of the software or feature the ability to integrate such data from external sources.

Access to Markets 

It will help you to understand that different exchanges offer their data in different formats (TCP.IP, FIX, Multicast). In order for your software to work correctly it will need the ability to read the feeds its receiving. Another option is to use a third party vendor that will aggregate data and deliver it in a uniform format.

Latency 

This is one of the most important factors in auto trading. Latency refers to the time delay incurred when data is moving between applications (from the exchange to your software data center to your trading screen. You software must then process this data, analyze it and make a trade.

Then the order travels to the broker and the broker routes this order in an exchange. The faster this process is, the better. This will ensure that your auto trading software is making timely decisions on data it is receiving and your trades are being made on time.

Customizability 

Many auto trading softwares feature common built-in trading algorithms based on common indicators such as the moving average. In this case, you may want to adjust the moving average from 50-day to 200-day to suit your preferred trading style. If a trader can't customize the trading software then they may feel constrained.

Ability to Write Custom Programs Within

Python, Matlab, C++, Perl and JAVA are some of the most common programming languages used to write algorithmic trading software. Many of these algorithmic trading softwares offer the ability to write custom programs inside of it. With such functionality, a trader's ability to experiment with any trading concept are almost limitless.

Price history for backtesting

Charts are crucial for performing backtests, so be sure to find an automated trading platform with detailed backtesting that can be applied over many timeframes. 

Platform Integration & Trading Interface 

Yes, automated trading software does most of the work, but the system still needs to be managed and adjusted as needed. Try to find an automated trading platform with an easy-to-use interface to allow for quick adjustments.

It will be crucial that the algorithmic trading software that you're using has sufficient connectivity to your broker's network or to an exchange for placing trades

It will also help you avoid unexpected costs if you are aware of your broker's transaction costs and fees, especially if your strategy entails frequent trades.

Integration for Plug-n-Play

It's common for traders to use many different trading tools - one terminal for price analysis, another terminal from their broker for placing trades and a separate program for performing trend analysis. Depending on your needs, you may need an algorithmic trading software that can easily plug-in and play with the APIs among the different trading tools.

Platform-Independence

Certain software languages require a specific operating system to function on, while others can operate on any operating system. When you are planning your auto trading software build or buy, it can be very helpful to have software that is platform-independent. This could be especially important as your trading evolves over time.

What's Inside 

Anyone, or anything, can press a button and make a trade. However, we should never become dependent on computer software. You can avoid unexpectedly losing time and finances when choosing an auto trading software by requesting detailed documentation revealing the logic the auto trading software is based on.

Remember to avoid using any software that doesn't offer a look inside at its underlying logic or ones that promise easy returns.

Now, it's time to look at some of the best automated trading software available to traders today. 

What is the Best Automated Trading Software?

Many people who are new to auto trading ask, "What is the best auto trading robot?'. They are interested in removing the psychological element from their trading and avoid becoming a victim of their own mistakes. Some believe the best auto trading robot makes this possible.

Much of the best automatic trading software aims to let traders set their parameters go to sleep or turn on the TV while it makes trades and earns a profit for them.

But, as I explained above, it's not so easy. When choosing the best automated trading software, it's important to not forget that even the best auto trading software still can't be left alone to do all the work without any risk. If you are experienced, you may choose to build your own robot trading software.

That said, let's discuss some of the best automated trading software for 2021. Instead of providing a list of each piece of auto trading software available, I'm going to discuss two of the best platforms for automated trading forex and other securities that offer a vast library of EAs and robots.

I'll do it this way because these two platforms offer a vast library of EAs and auto trading robots that suit a wide range of trader needs, from beginner to expert, and should cover any traders needs. These platforms are some of the most widely acclaimed trading platforms available to traders today.

An added bonus is that if you aren't interested in paying for automated trading software, one of these trading platforms I discuss in the next section gives traders access to some free auto trading robots available for download.

MetaTrader 4 (MT4)

MetaTrader 4 (MT4) isn't a piece of robot trading software, but it is one of the most popular forex trading platforms around. It was released in 2005 to widespread acclaim and shortly after became one of the most popular forex trading platforms among experienced traders. MT4 it includes a vast library of EAs and some free robots.

MT4 Key Features:

  1. Convenient and flexible trading: MT4 offers three execution modes, two stop and market orders.
  2. Analytics: traders can use customisable and interactive charts on nine different timeframes with 30 different technical indicators.
  3. Mobile version: MT4 also comes as a mobile trading app for Android and iOS devices.
  4. News and Alerts: these conveniently notify traders of events that may affect financial markets. This helps traders find trading opportunities.
  5. Free demo account: practice trading in a real environment with real market data. Test stop limits in different scenarios and try out different trading strategies to see if they work before trading your money on the real markets.

MetaTrader 4– Robots & Expert Advisors

MT4 auto trading options include Expert Advisors (EAs) that execute orders according to a pre-determined set of rules and conditions. Thes MT4 auto trading EAs use algorithms for buying and selling securities while monitoring market conditions, automatically detecting possible trading opportunities.

Once you set your trading parameters on these EAs, they can alert you of opportunities and risks when the trading signals match your set market conditions.

Pros of MT4 Automated Trading

Programming Language

MT4 uses the MetaQuotes Language 4 (MQL4). This is similar to C programing language. Once you learn the MQL4 language, it's easy to develop your own custom automated trading software. C language is one of the most popular programming languages, so the number of developers that can code in or learn MQL4 is likely high.

MT4 Automated Trading Marketplace

Due to the wide acclaim and long life of MT4, it has one of the biggest trading platform market-places. MT4 features one of the vastest collections of EAs, algorithmic trading tools and technical indicators for the CFD and FX industry. In the MetaTrader 4 Marketplace, you'll find:

  • 1,700+ trading robots
  • 2,100+ technical indicators

With such a wide selection of auto trading robots and EAs, MT4 auto trading likely offers something for every kind of trader.

MetaTrader 5 (MT5)

MetaTrader 5 (MT5) is an upgraded version of MetaTrader 4 (MT4), in regards to access to a wider range of asset classes, simpler programming language, and wider backtesting abilities. Unlike MT4, MT5 is a platform offering access to multiple different assets - users can trade such derivatives that need access to a centralised exchange, such as futures and shares.

MT5 Key Features:

  • Four modes of execution and six types of pending orders.
  • 46 analysis indicators, 38 technical indicators and 21 timeframes.
  • Partial or full order fills.
  • An economic calendar with a wide range of news includeing market news on economic events and social indicators.
  • Depth of market.

Pros of MT5 Automated Trading

Programming Language

Unlike MT4, which is based on the C programming language, MT5 utilizes the MetaQuotes Language 5 (MQL5), which is based on C++ language. C++ is more widley used than C, partially because it's an object-oriented language and is a better quality language than MQL4. However, it's use of the MQL5 language instead of MQL4 means you can't use the EAs written for MT4 in the MQL4 language. These languages aren't compatible.

Marketplace Access

MT5 has a built-in Marketplace inside the platform. Unlike in MT4, where you must click through many websites to reach your desired MT4 auto trading software, MT5 has every app located on one tab, built in to the platform.

Contracts for Difference (CFD)

With MetaTrader 5 you have the option to trade asses traded on a central exchange. This creates great market access. Specifically, this means you can use an EA on a wider range of derivatives than you can on MT4, such as with stock and future trading.

62-bit Memory for Backtesting

MT5 offers traders superior backtesting abilities to MT4. Like MT4, it uses the Strategy Tester; however, MT5 is a more robust automated trading platform. It features:

  • 64-bit memory: While MT4 features a 32-bit memory, the more powerful memory of MT5 can handle auto trading software of either 32-bit or 64-bit. With quality EAs that utilize this memory, you can boost the overall performance of the platform, which will result in faster auto trading.
Multi-Threaded Backtesting

MT5 can test many financial instruments at once. This might be important if utilize Expert Advisors to perform many trades while simultaneously analysing large data volumes. It's also useful if you wish to backtest your strategy against several currency pairs.

Unlike MT4, MT5 is able to communicate with up to four servers at once – an access server, a trading server, a backup server and a history server. This results in greater backtesting capabilities.

Improved reporting features which you can use to file backtesting reports in Excel file or HTML format.

Speed

As mentioned above, MT5 uses a 64-bit memory along with 4 servers (access, trading, backup and history servers), which allows for quicker trading abilities than in MT4. While using auto trading software in MT5, you can avoid potential slippage that results from high workloads.

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Top 5 Questions About Automated Trading

1. Is Forex Automated Trading Profitable?

Forex automatic trading software does not guarantee 100% profits, but they do make sure that you will benefit the most from market movements, whatever they may be. Automatic Forex trading systems work in a very articulate and coherent way. Expert advisors are basically programs that comprise of the certain modules that investigate charts and figures, which move between a trader and a Forex broker.

These specially designed programs are extremely easy to handle and work with, so you don't need any prior training in order to handle them.

You just need to download the program, install it, and then adjust the settings on your computer. The automated currency trading system will then start working, and will start generating immediate results.

2. Are Forex Robots Effective?

Though Forex robots promise to make beneficial trades, not all of them are what traders expect them to be.

Although they can scan millions of different charts within seconds, most often 90% will turn out incorrect information. This is understandable - because Forex robots are just robots. Even though they are capable of performing highly sophisticated tasks, and many at once, every Forex robot is still deprived of creative thinking.

They cannot imagine what may take place in the near future, as their functionality is restricted to how they were initially programmed, as well as past performance.

For traders who use robots, they should not fully depend on it to conduct all of their trading activity. Ultimately, trading demands a considerable amount of human research and observation. Additionally, humans, and not trading software, can actually follow up with diverse economic conditions, and keep up with the news in the financial world.

Forex robots, which are thought to be Forex robots that work, can solely find positive trends as well as trading signals, but occasionally their functionality is unfavourably affected by either jittery trends or false information.

Successful FX trading is based on knowledge, proficiency and skill. It involves analytical thinking, and something visual. When looking at what are Forex robots, it is clear that they cannot properly work in this manner. Market conditions tend to change all the time, and only an experienced Forex trader can distinguish between when to enter the market, or when to stay away.

3. What is the Best Automated Forex System?

Many automated Forex systems are offered for free, with extremely tempting service guarantees. However, these programs aren't faultless. The disadvantage is that many of these systems are associated with scams. Nonetheless, the best automated Forex trading system can be safely attained if the privacy parameters programmed into the system are correctly set and checked.

It is hard to say what the best EA is, as in most cases, profitable EAs are difficult to access. There are many robots that used to be profitable. However, they are no longer relevant to current market conditions. For the most part, the best automated system to use is the one that you use for manual trading. Have it coded in MQL, this way you can substitute your own efforts with the script.

4. How Can You Get an Efficient EA?

As mentioned earlier, the best EA is the system that would do exactly what you would do, but automatically. This way you can save yourself a lot of time, and you would simply focus on the development of your trading strategy, without actually having to execute it. This is certainly a great time saver for most Forex traders.

How can you automate your own trading system? If you are trading on a MetaTrader trading platform, you can compose your own trading robot using MQL programming language. However, it may be the case that you are a good trader, but have little or no programming knowledge.

This isn't a problem - there are plenty of superb, reputable MQL programmers available who will code your trading strategy and create an EA for you at a reasonable cost.

5. Is Automated Trading a Scam?

The idea of having software trade the market for you can sound too good to be true, which can lead many to wonder if it's all a scam. In fact, some federal governments consider automated trading systems to be scams. In a similar way, you are not likely to find any article in Forbes, the Wall Street Journal, or any other respectable news source that promotes them.

What's more, even online robot merchants try to move their robots in rank by claiming that their opponents' ones are scams. A lot are advertised with false claims by people who have made serious money applying these systems.

The truth however, is that a great number of investors and traders have lost a lot of money using so called 'free' Forex robots that work. There have even been circumstances in which whole accounts have been wiped out.

The biggest disadvantage of automated trading systems in the Forex market is that there are a lot of scams. The more you search for a perfect system, the higher the chance of seeing pages that promote EAs with 100% daily returns is. These pages display MetaTrader history showing how profitable the advisor is - and they usually come at a price.

You can buy some software for as little as 25 USD, while some software can cost as much as 1,000 USD. Some websites will guarantee high profits, and may even offer money back guarantees. However, the vast majority of these types of EAs are, unfortunately, scams.

Think for yourself for a moment. Would you sell a highly profitable trading system if you could make profit with it on a managed account? Probably not. Would an efficient automated system be priced as low as 25 USD? Again, this is extremely unlikely.

Auto trading developers can potentially become millionaires. Smart designers are aware that people yearn to make a lot of money, and try to ensure that robot Forex trading appears to be one of the finest ways that they can achieve this. Nonetheless, they exploit this as a possibility to design a robot, or any other software (or even a DVD, webinar, seminar, e-book etc) to sell and prosper.

If the robots they sell could actually make a huge amount of money through trading the currencies, then what is the point in selling them to others and not utilising them on their own Forex accounts?

The answer is logical - robots can barely make money for a Forex trader. Could a $99 automated Forex robot or a free, open source Forex robot really make hundreds or thousands of dollars every month? If it could, you have to ask yourself - would it really be sold for such a relatively low price?

It is important to be able to identify EA scams and not fall for them. Generally speaking, it is sensible to avoid anything that you have to pay for. You will not only lose the money on the software purchase, but if you are using the advisor on a live account, you could also lose your trading balance.

Conclusion

Although automated trading may seem appealing for a variety of reasons, such systems should not be considered as a substitute for carefully executed trading.

Mechanical failures can and do occur - and systems require continual monitoring. Server-based platforms might provide a solution for traders who want to diminish the risks of mechanical failures. It is recommended by many professional traders to use a hybrid approach, consisting of manual and auto trading to achieve the best results.

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This material does not contain and should not be construed as containing investment advice, investment recommendations, an offer of or solicitation for any transactions in financial instruments. Please note that such trading analysis is not a reliable indicator for any current or future performance, as circumstances may change over time. Before making any investment decisions, you should seek advice from independent financial advisors to ensure you understand the risks.

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