Autotrading is a trading plan based around the buying and selling of orders placed automatically from an underlying system or program. The buy or sell orders are sent out to be executed in the market when a certain set of criteria is met.
Autotrading is a type of trading plan that allows investors to capitalize on market opportunities in real time. It typically involves complex programming through advanced software trading systems. Traders can program software systems to make automatic trades based on a customized trading strategy. Basic forms of autotrading can also be utilized by all types of retail investors. Overall, autotrading systems are used in a wide range of markets including stocks, futures, options and forex.
Generally autotrading requires a pre-determined trading strategy. It can be structured in various ways for all types of investors. Retail investors may deploy basic autotrading plans through the use of automated investing at specific times or through conditional orders on brokerage platforms. Conditional orders allow an investor to enter trades at specified levels for automatic execution when a price is reached.
Institutional investors and technical traders will use complex trading systems that allow for conditional orders and grid trading. These investors use more complex conditional orders that can be generated through advanced charting software systems, advanced trading platforms or a combination of both. Many technical day traders will subscribe to trading systems such as ProfitSource that work in connection with a trading platform to place automated trades. Brokerage platforms such as TD Ameritrade and Interactive Brokers are also popular for technical autotraders. Institutional investors will typically have their own proprietary trading platforms that allow for auto trading through algorithmic programming. (See also Choosing the Right Day-Trading Software)
Investors use autotrading to execute pre-programmed trades in real time. Autotrading allows all types of investors to build trading plans for capitalizing on their own trading strategies. Institutional investors may use complex algorithms that seek to place trades for investment portfolios based on defined criteria governed by a portfolio’s objective.
Technical day traders will use auto trading to invest based on technical market signals. Many day traders choose to automate investing through a grid trading strategy. Grid trading strategies can be useful for investing into a trend as they allow automated investing triggered by incremental moves of the security’s price in a specified direction.
Technical day traders also commonly use complex conditional orders for auto trading. These types of orders allow an investor to specify an entry price and build a collar around the trade to institute pre-determined profit and loss levels for risk management. Autotrading is also popular for investors in the forex market. Forex autotrading also allows for customized programming. Many forex traders will choose to invest with preset autotrading platforms that offer autotrading based on trading strategies developed by the software provider. (See also Forex automation software for hands-free trading)