Robot Trading – A Detailed Overview

While trading in the stock market, you may have come across the term robot trading or Algo trading, or automated trading.

Have you ever wondered what is robot trading? How you can trade in the stock market with it? 

In this article, we are going to discuss what is robot trading Or algorithmic trading, its benefits, and the different types of strategies that are used by algo traders.

What is robot trading? 

Robot trading, also recognized as algorithmic trading or automated trading Or black box trading, Or simply algo trading, is a type of computer-assisted trading system that allows traders to rely on computers to carry out different user-defined activities like entry and exit by defined rules.

The robots which are employed in this automated trading basics use different mathematical algorithms to help the traders to select when to trade and how to grab advantages of the best trading opportunities, and allow them to complete the operation without the need for human intervention.

So in simpler terms, Algorithmic trading is nothing but the process of using computers programmed to follow a defined set of instructions to place a trade so that it can generate profits at a speed and frequency which is impossible for a human trader. 

robot hand and stock market

How does robot trading work? 

Trading robots are generally automated software programs that generate various trading signals. Most of these robots are made with MetaTrader, by using the MQL scripting language, which let the traders generate trading signals or place orders, by managing trades. 

These robots are specifically designed to remove the psychological element of trading which can be detrimental.

Automated trading robots are available over the internet for purchase but traders should exercise caution while buying a trading system this way. 

Sometimes, different companies will spring up overnight to sell these trading systems along with a money-back guarantee before it is disappearing a few weeks later. 

It may be cherry-pick successful trades with the most likely outcome which is used for a trade or curve-fitting to generate great results while backtesting any system, but they are not legitimate systems for assessing any kind of risk and opportunity.

Types Of Algorithmic Traders

Mid- to long-term investors or buy-side firms

Different mutual funds, pension funds, and insurance companies use the algo-trading to purchase stocks in larger amounts when they don’t want to influence the stock prices along with their discrete, large-volume investments.

Short-term traders and sell-side participants

market makers like brokerage houses speculators and arbitrageurs get benefited from automated trade execution. Along with that algo-trading aids in the creation of sufficient liquidity for sellers in the market.

stock trad

Systematic traders

Systematic traders include trend followers, hedge funds, pairs traders, or market-neutral trading strategy which matches the long position along with a short position in a pair of highly correlated instruments like two stocks, exchange-traded funds, or currencies.

Traders find robot trading as a much more efficient program for their trading rules and let the program trade automatically

Benefits of Robot Trading

There are several benefits of robot trading. Let’s discuss a few of them. 

Emotion less

Robot trading is primarily emotionless. When the emotions of people aren’t under control, they may have to go through a hard time while sticking to their trading plans. 

On the other hand, robots are completely rational. As robots are not subjected to any kind of psychological stress which is associated with trading, they generally obey the regulations of trade and carry out the strategy without any hesitation.

It ensures that discipline is maintained throughout the trading process, along with that the plan is followed precisely.

Quick entry orders

For any trader, time is very crucial. If you have done trading you might have to know that even a few seconds can make a significant difference in the outcome of a trade. 

As a result, traders can get benefit greatly from computers which can digest information fast and can generate orders as soon as the parameters of trade are met.

robot

No breaks

A human can’t afford to work continuously for a longer period; he has to take breaks to eat and relax. But the robots can operate 24 hours a day, seven days a week without showing any diminishing efficiency. 

This feature of not taking a break is very significant because robot trading allows the robot to take advantage of the chances which are available throughout various time periods.

Emergence of digitization

Robot trading has flourished as an efficient trading tool since the emergence of digitalization in everything. 

As most businesses nowadays are revolving around digitization, it is evident that we people are living in a digitally developed world with endless possibilities. 

Our next generation is handier with these digital platforms and they are really very smart at handling it which makes robot trading even more suitable for them.

Less time consuming

Trading with the help of algorithms or robot trading is very less time-consuming when compared to manual trading. 

Manual trading is a very tedious job as it requires constant tracking and attention to the share market. Robot trading works without any kind of human intervention once the orders and instructions are set in the system.

We are living in a generation where people are busy all around, don’t have much time, and love to trade on an automated system such as robot trading where they don’t need to spend a lot of time. 

What platforms can you use for automated trading?

While there are a lot of trading platforms available in the market, the platform that you will use for automated trading Or robot trading will depend on your trading preferences.

But here few of the robot trading platforms given below that you can use for automated trading. 

ProRealTime

If you want to automate your trading along with assisted creation tools or enable yourself to build simple or advanced strategies without the need for coding, you should go for ProRealTime. 

With the help of ProRealTime, you will get full access to an advanced, but very easy-to-use, backtesting suite to test your system. 

This platform has more than 100 indicators and is very optimized to suit new and experienced traders alike. You can also access it for free if you trade at least four times a month.

MetaTrader4

If you want to customize your trading experience by building your own expert trading algorithms, creating indicators, and placing a range of orders, the MetaTrader4 is a perfect option for you.

Apart from that, import Expert Advisors (EAs) will be available there to help you to find opportunities as per your pre-defined parameters. 

These EAs can either notify you of any kind of opportunity or open a position automatically.

APIs

If you are ready to build your own platform and create advanced trading solutions from scratch, APIs are the perfect option for you. 

This API platform enables you to code your algorithms from the ground up to scratch. Orders in this platform are filled using different market-leading IG technology that makes sure that you can get the best execution. 

You also can view real-time and historical market prices, analyze different market instruments and trader sentiment information, which will maintain watchlists, and more.

Is Robot Good For Trading?

If you are wondering robot trading is good or not, let us discuss this matter and clear your worries. 

Yes, robot trading is very good for the purpose of trading because this is automated and can perform trades at a huge number of trades at once with a greater level of accuracy. 

Along with that, it also helps you to back-test your previous trades so that you could find out where you went wrong. Apart from that, as the trades can be conducted without any supervision, it will also help you to save time and transaction costs.

Conclusion

Robot trading is a great tool to do trading, but let’s be real there is no perfect one in the world that will work in all environments, all the time.

Even these quant funds and robot traders can lose money, but they have Ph.D. mathematicians and financial engineers creating their programs. So you can trust them blindly.

*image source from Google

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