What is a trading robot: definition and functioning

Trading robots are everywhere in the financial markets! But what are they ? A trading robot

is a software that places orders in complete autonomy thanks to algorithms. It is programmed and automated to follow the orders to be executed. The trading robot is an automation of the trader’s task.

It collects data and analyzes the markets. It makes the investments for the trader without the trader having to follow the prices of his assets. It is also able to close orders, day and night, without interruption.

Today, we will discuss the many advantages of trading robots for the trader, but also the limitations to be taken into account.

The advantages of automatic trading

Using a trading robot can offer many positives to those who decide to use it.

The robot is operational 24 hours a day

Being automated, the robot works day and night without interruption. It opens and closes trades for the trader taking all opportunities.

Lack of human feeling

Since the robot is totally devoid of feeling and emotion, it will not be subject to stress, lack of confidence or fatigue. It will make decisions at the right time, which makes it efficient.

Save time and money

You don’t have to think anymore because the robot will make all the decisions. In fact, the robot performs the operations in a short period of time while doing several things at the same time. Everything you did before, the trading robot does now while managing the risk !

Its limits

Despite the large number of trading robots on the stock market, its drawbacks are still visible and present.

The cost

Opting for a trading robot is a long-term investment. Indeed, it takes time to create. The backtests must be done on powerful computers. It is difficult to think of designing it on a laptop for example. Finally, the technical knowledge to create such a tool is indispensable. But for all the advantages it brings and its added value on the long term, this disadvantage can become an advantage.

Stock markets are unpredictable

The robot is automated and programmed. Thanks to the algorithms, you will tell it what to do beforehand. But stock markets are unpredictable and evolving. This is where human practice is necessary! It requires personal involvement in order to check if the market evolves in a scenario that corresponds to the algorithmic strategy of the robot. The robot will only work under your orders.

Here are the tips we can give you, if you want to opt for a trading robot

  • Have knowledge in the field of trading

  • Know how the algorithms and strategies work

  • Test the trading robot in real conditions on a demo

  • Check that it works

Once you have chosen your robot, you have several ways to check if it works

  • Check its monthly profitability: on your invested capital, how much is your return on investment

  • Test the demos if possible: It is always better to test the robots before taking a position. Many demos are available, to test the robots, if they suit you or not.

The Robank Hood automatic robot is available just by clicking here 👇

In conclusion ...

As you can see, although the trading robot makes your life easier and more efficient, it still requires human supervision. The trick is to know if the challenge is relevant to you !

Did you know ?

« It is possible to trade volatility using the « VIX ». This means that the higher the VIX, the more risky the investments are likely to be. The British even call it the fear index. »

Florian Delamotte

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