The term ‘automated trading’ is now widely used in the financial markets, although not everyone fully understands what this phrase means or refers to.
In simple terms, automated trading refers to a method of participating in various financial markets by utilising a program that executes orders according to a number of predetermined rules.
These rules govern the entry and exit points for trades, whilst they’re set based on the analysis of data and various technical indicators. But how does automated trading work in the forex market and what’s the best platform for executing this type of strategy?
Why Use Automated Trading Work and What do You Need to Know?
Automated trading essentially enables you to execute an optimal number of trades in a relatively small amount of time, while it can also maximise efficiency by minimising the risk of human error.
It can also take emotion out of the equation when opening positions, as algorithms use a combination of pre-set rules and technical analysis to achieve the best possible results.
This also creates a provision for agile risk management, with automated tools such as stop losses enabling you to automatically close positions once a pre-determined and acceptable level of loss has been accrued.
While automated trading may minimise the need for human direction, however, there’s still a need for you to manage your platforms and interfaces over time. This is why your choice of software is so crucial, as you’ll need to identify an option with a navigable interface that enables you to adjust your strategies in real-time (we’ll have a little more on this below).
Remember, you can also use automated trading software to perform so-called “backtests”, which offer you access to detailed price histories and enable you to make more informed decisions.
However, the quality and depth of backtesting may vary wildly from one platform to another, so it’s important to keep this in mind when building an effective automated trading strategy and incorporating this going forward.
What is the Best Automated Trading Software?
Interestingly, automated trading programs don’t always offer you access to your preferred market, with examples such as the MetaTrader 4 (MT4) only compatible with forex products.
However, the MT4 also happens to be the best automated trading program online, despite the fact that this platform has been in existence since its initial launch way back in 2005.
Powered by the Russian tech firm MegaQuotes Software Inc., this entity runs its own market leading programming language (MQL4), which is similar to popular and incredibly familiar entities such as C.
The MT4 also offers customisable charts and an easily navigable interface, both of which are central to the success of automated trading and the pre-set rules that govern the opening and closing of trading positions.
While this platform has since been superseded by the MT5, this uses a completely different programming language in the form of MQL5.
This means that forex traders have remained loyal to MetaTrader 4 over time, with the platform also home to some exceptional Expert Advisors (EAs) which are designed to implement cutting-edge automated forex strategies.