Implementing an Automated Trading System in Volatile Markets


trading

Anyone would be interested in an automatic system that trades on their behalf without running the risk of incurring losses.  Although it sounds too good to be true, you can find robust and efficient automated trading software to make your daily trades faster and more accurate. 

It is simple to set scales that regulate entry and exit points in the markets with such a trading system. The program can monitor the calls, and trades are executed automatically with no human intervention. 

The entry and exit circumstances can be as simple as buying and selling or more complex and sophisticated strategies that consider arbitrage and other market variations. An automated trading platform can be set not just for the stock market but also for forex trading. Anyone owning a computer with an internet connection and necessary licenses can trade in the markets using this system. 

Using an Automated System in the Forex Market

An automated system is designed to analyze the forex market and read the currency charts minutely to identify trading signals. It can detect any spread discrepancies or any instability in prices, which can affect the market’s direction leading to fluctuations, which traders can take advantage of to make quick profits. 

Most of these systems feature built-in elements that devise a strategy considering the current market situations. The traders can set their parameters based on specific technical indicators, and trades take place automatically. Traders using the system can also customize indicators with the help of a programmer who is proficient in the system. 

Programming Strategies

However, when traders wish to program their strategies, they will need to use specially designed software linked to the system. The criteria for such an automatic system are coded into the programming language of the platform. Good examples are popular trading platforms based on the MQL programming language. 

Conventional Architecture 

A trading system is designed to interact with the stock exchange to receive market data, based on which it sends order requests to the exchange.  The data received by the system gives it a clear picture of the order book and volume and prices of the last trade executed. 

The trader may have to rely on other software to fetch information on old values in past trades, derived from the history sourced from a historical database. All this information is flashed on the screen for the trader to get his cues. 

Limitations of Conventional Architecture

It has been established that a conventional architecture is not able to keep up with automated systems as the latency in High-Frequency Trading is in milliseconds, which is beyond human perception or control. Also, using conventional architecture, a trader cannot execute multiple trades deploying multiple strategies simultaneously. 

An automated trading system can handle 1-millisecond latency and execute more than a thousand trades in a split second.  These thousand trade orders pass risk management tests before reaching the exchange, all within a split second. A high level of complexity is no concern for a trading system.

The Architecture of an Automated Trading System

The automated system features a unique risk management system applied within the application and prevents fast-finger errors leading to incorrect values being entered, resulting in heavy losses. The system is designed to avoid such mistakes before they occur, all within a split second. 

The algorithm generates trade orders based on data inputs, which have to be new, fresh data that is not even a second old. Traders are often willing to pay a high premium to avoid delays in data delivery, which can cause losses. 

Summing it Up

Risk management is an essential tenet of trading. When trading is automated, manual orders are automatically disabled. Based on guidelines, only a select list of instruments is enabled in automated trading, which can be a drawback for traders who wish to trade in that particular instrument.