Algorithmic trading, trading bots
Algorithmic or automatic trading is the performance of purchase and sale operations in financial markets using specialized programs - trading bots. In the trading platform, these programs are also referred to as advisers or experts.
History of algotrading
Algo Trading originates in the 2000s. Oddly enough, but initially trading robots were created not with the aim of making the most profit, but in order to automate the execution of large applications. At first, such algorithms were used by investment and mutual funds, banks, institutional investors who simply could not afford unnecessary risks in working with huge amounts of money. Previously, we had to contact special companies in which very experienced and qualified employees worked, specializing specifically in opening warrants. But working through intermediaries was very inconvenient, and when programmers developed automatic engines for opening transactions, complex applications began to be executed much more conveniently. And although the commission for using such an engine was higher than the cost of intermediary services, it was still beneficial.
Then the trade robot industry began to expand, and special programs appeared that were already intended directly for Forex trading. These are trading robots, at the heart of which is some kind of profitable strategy.
Today, there are two types of algotrading: mechanical and automatic. Mechanical algorithmic trading is such a way of trading, when a robot based on market analysis gives trading signals, and the trader himself decides whether to follow them or not. Automatic trading involves the complete elimination of the trader from the trading process: the adviser does everything himself - opens and closes positions based on the algorithm laid down in it.
Advantages of algotrading
1. 24-hour work
Obviously, the trader cannot constantly trade. As hardy as a person is, they need at least 8 hours for healthy sleep and rest. And if you add work, household chores, communication with your family, etc., it turns out that there is very little time left for trading. But on Forex, profitable situations constantly arise for making profitable transactions, and most traders simply miss them. But the trading robot works 24 hours a day. He has no other business and does not need to take any respite, so even if there is a good opportunity to open a good deal at 3am, the adviser will certainly take it.
2. No emotion
Any trader to one degree or another depends on emotions that sometimes greatly interfere with trading. Fear, uncertainty or vice versa, overconfidence, excitement, greed are the things that keep trade from succeeding. Algotrading allows you to exclude the human factor, because the automatic system acts exclusively according to the rules of the strategy on which it is based. In general, if there is the most disciplined trader in the world, then this is a trading adviser.
3. Ample opportunities
It is difficult for an ordinary trader to work with many indicators and currency pairs, you have to choose 1-2 market assets and several of the most convenient tools for technical analysis. Algorithmic trading greatly expands earning opportunities, as the robot can work with indicators and currency pairs in any number. The only nuance is that you need to set the adviser the correct settings and from time to time adjust your algorithmic trading strategies.
4. No need for experience
Even those who do not yet have enough knowledge in the field of trading can start earning with the help of advisers. After all, automatic systems do everything instead of a trader who is not obliged to delve into all trading nuances.
5. Accuracy and speed
Counselor programs are not able to put a comma in the wrong place or an extra zero, which is a frequent human error. Similarly, the robot does not enter the wrong deal. The software will operate exclusively on the basis of the procedure set by the developer. Additionally, the bot is able to open several transactions for you at once, which will increase the potential profit.
Writing the programs themselves is a time-consuming and lengthy procedure that requires a thorough study of the behavior of real traders, market psychology, quotations and other factors that directly affect performance. Constant changes in the market lead to the need to update algorithms.
By the way, there is a common opinion that paid advisers are a priori better than free ones: after all, quality always costs money. However, in practice it does not always work out that way. There are times when the usual free advisers, based on a rather simple and unassuming strategy, when properly configured, give good results. And it also happens that expensive robots quickly drain the deposit.