What is Automated Trading? – Part I


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Automated trading is an approach that is faster owing to the usage of the automated system for executing trade orders. With your expertise in the trading domain, you can automate your trading approach instead of manually carrying the trade execution. In this blog, you will learn all about knowing and getting started with an automated trading approach.

The blog covers:

  • What is automated trading?
  • History of automated trading
  • Working of automated trading
  • Difference between automated trading and algorithmic trading
  • Difference between old and new brokerage model
  • Example of automated trading and algorithmic trading
  • Prerequisites for practising automated trading
  • Resources to learn automated trading
  • Steps to building an automated trading system
  • Benefits of automated trading
  • Drawbacks of automated trading

What is automated trading?

Automated trading uses computers to generate trading signals, send orders and manage portfolios using algorithms with or without human intervention. Sophisticated electronic markets/platforms are used by the algorithms to trade in a similar fashion as done in electronic trading.

History of automated trading

Speaking about how automated trading began and went on to become so useful for traders, let us see one by one the journey of “automated trading” from the beginning:

  • It was in the year 1949 when Richard Donchain first introduced the concept of an automated trading system. He made use of a set of rules for buying and selling the financial markets’ assets.
  • Then, it was in the 1980s that rule-based trading became popular amongst traders as famous traders such as John Henry and the likes started using rule-based trading strategies.
  • It was in the mid-1990s that the improvised versions of automated stock trading models became available for purchasing. These trading models also raised the accessibility for retail investors in the financial markets’ trading domain. However, in today’s time, the automated trading system is taking care of assets across the globe.

Stay tuned for Part II in which Chainika Thakar will present the difference between automated and algorithmic trading.

Visit QuantInsti for additional insight on this topic: https://blog.quantinsti.com/automated-trading/

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