The Evolution of Automated Trading: Why It is Taking Over the World

automated trading system

What is automated trading and why you should utilize it?

The world of trading has changed dramatically, all thanks to automated trading, or automated algorithmic trading. This strategy has transformed the world of finance by making complex trades simpler and more streamlined. It is also reducing the costs associated with human traders.

But how exactly does it work? And what impact has it had on the financial markets? Keep reading to find out everything you need to know about automated trading, including how it works, why it’s so popular, and where it’s headed in the future.

What Is It?

An automated trading system uses a computer program that executes a set of instructions to place a trade. When the set requirements are met, the computer software will automatically monitor the stock price and place buy and sell orders. The trader no longer needs to manually enter orders or check live prices and graphs. The system do this automatically by accurately detecting the trade opportunity.

Richard Donchain was the first to introduce the concept of an automated trading system in 1949. He bought and sold assets on the financial markets using a set of rules.

Then, in the 1980s, rule-based trading became popular among traders, thanks to the use of rule-based trading methods by well-known traders such as John Henry.

The initial versions of automated stock trading models became available for purchase in the mid-1990s. These trading methods also increased retail investors’ access to the financial markets’ trading domain. However, in today’s world, an automated trading system looks after assets all around the world.

Why does It matter?

On institutional trading desks, the variety of operations that can be automated is expanding, from simple and routine trades to medium-sized trades and increasingly sophisticated order types. The growth of automated trading algorithms is accelerating the evolution of financial markets. As trading desks grow increasingly automated, human traders are improving their skills.

To guarantee that automation runs smoothly, traders must crunch more data and use the appropriate automation tools, automation triggers, and risk structures. Computer scientists working with trading algorithms have resulted in a surge of job ads for financial engineers. At the same time, we see demand for more traditional analysts has remained stagnant.

Automated trading is responsible for the success of some of the best-performing hedge funds. It performs trading commands instantly and accurately, free of human emotions and latency. It is technology-oriented and fast-paced.

A study in 2019 showed that around 92% of trading in the Forex market was performed by trading algorithms rather than humans. It currently accounts for about 20% of all institutional foreign exchange trading volume and half of all stock trading volume.

What will be the future of automated trading?

“Information is the oil of the 21st century, and analytics is the combustion engine.” A quote by Peter Sondergaard (1965 – ). The quote could be used to emphasize the significance of data and data analytics. The faster data is received, the faster a decision can be made.

The majority of trade in many nations is becoming automated and relying on automated trading. This had a significant impact on the trading world. And without a doubt, it provides us with even more motivation to begin using it.

Machine learning provides advanced methods for extracting patterns from data generated all around the world, allowing technology to examine it in real-time. Because of its progress and the prevalence of newer technology, the intelligent machine could very well lead the entire trading revolution.

Future developments might easily evaluate all of the historical data that we have archived over the duration of trading history to discover trends, what would work, and what would not. It could also learn to accurately predict future markets while trading numerous accounts and techniques to spread risk and decline or approve real-time bids and offers.

It may be capable of checking many market situations throughout the world at the same time, reducing time and eliminating the possibility of even the smallest delay or mistake.

In the future, it is very likely that trading will be dominated by machines. Humans make errors. As a result, we create machines to help us overcome our errors. Automated trading’s future possibilities are obviously fascinating, and it is expected to grow exponentially. There’s no denying that this technology has revolutionized how investors trade around the world.

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