The journey and future of automated trading

Published: Mon 3 Oct 2022, 11:48 AM

Retail investors are embracing automated trading rapidly, but this is not a new phenomenon. As early as the 1940s, there was a desire to develop rule-based trading systems. Investors found out early enough that having a structured approach to their trading activity can give them an edge in the markets by helping them maintain objectivity, manage risks, and prevent self-sabotaging decisions. In the 21st century, technology has accelerated the adoption of automated trading solutions by retail investors in two major ways: trading robots and social trading.



Trading robots

Trading robots or expert advisors are computer programmes that perform trading functions according to coded algorithms. For investors, this has allowed them to trade faster and more efficiently, applying their strategies at their most optimal levels. Trading with robots also eliminates subjective human emotions from objective trading activity. It also guards against analysis paralysis, allowing traders to explore all the opportunities that meet their strategy criteria. Trading robots have also allowed traders to trade outside their available hours. For instance, a trader in Asia trading the forex market can access the lucrative opportunities that are typically available during the European and New York trading sessions. Robots have also allowed faster and more effective development, testing, and optimisation of simple and complex strategies. Some of the best strategies to automate include trend-following, range-bound plays, correlation opportunities, volatility breakouts, and arbitrage trading.

Automating your trading activity using trading robots or expert advisors can without doubt make you a better trader. There are many services that traders can use to automate their strategies, but there are also paid robots. Traders must however perform due diligence when choosing automated trading products to avoid being scammed.

Social trading

The major trend in automated trading in recent years has been social trading. This is not so surprising considering how social media has become so influential in our lives. The earliest form of social autotrading platforms only supported copy trading. This effectively linked one’s trading account with another, allowing traders to mirror the trading activity of experienced or more successful investors. But in the recent years, social trading platforms have focused more on the community and incorporated comprehensive features that have allowed traders to interact more with each other. The features include social feeds, chatrooms, and detailed performance statistics of various traders. Social trading has been very effective for both beginners and experienced investors. Beginners have had a chance to literally ‘learn and earn’ while trading. By networking with their peers as well as experienced investors, beginners are effectively shortening their learning curve by gleaning from the knowledge and experience of the more successful investors. As for experienced investors, social trading also helps them to make trading fun rather than a typical lonely activity.

The future of automated trading

The future of trading is indeed automated. Innovations continue to emerge in the fintech space that will impact the automated trading scene. Major integrations are likely to be machine learning and AI. The automated trading products of the future will have self-learning algorithms that will enable them to improve their parameters so as to boost performance. Most trading robots currently only scan for technical opportunities in the market under certain defined market conditions. With AI, robots will be able to combine technical analysis with both fundamental and sentimental analysis in different market conditions. This is essentially deep learning, where human-like decisions are made with the speed and power of computer algorithms.

This is very exciting for traders because they will be able to design automated trading tools that use human logic in the markets. This is already happening in some major financial institutions, but there are more possibilities that such technologies will be democratised to retail investors. Beyond financial assets trading, automated trading solutions can also help retail traders to access other investment opportunities such as property and fixed instruments. This would mean that traders will be able to track in real-time alternative opportunities that emerge in other spaces within their trading platforms. With technology ever advancing, the possibilities of automated trading opportunities are endless, and they are available for retail traders.


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