What Is Trading Software?

Trading software facilitates the trading and analysis of financial products, such as stocks, options, futures, or currencies. Often times, brokerage firms provide their clients with trading software to place trades and manage their accounts. The software may be downloadable and launchable from a desktop or mobile device, or it may web-based, where the trader accesses the software via a website they log in to.

Traders can also purchase third-party trading software that supplements or enhances the software provided by brokerages.

Key Takeaways

  • Trading software facilities trading and analysis of financial products.
  • Self-directed traders need to utilize and learn how to effectively use their trading software in addition to learning how to trade or invest.
  • Common features of trading software include order placement, technical analysis, fundamental analysis, automated trading, and paper trading.

Understanding Trading Software

Due to falling commission costs over the years, more traders and investors have moved to doing at least some of their own trading and analysis using self-directed trading accounts. This has increased the demand for software that provides trading capabilities, as well as analysis and information resources within the software.

Trading software can provide users with pricing information for assets, special order types, fundamental data, charts, technical analysis indicators, statistics, chat rooms, and other proprietary tools or functions that brokers and software developers use to draw traders to their service.

The availability of application programming interfaces, or APIs, has also helped fuel the trading software industry. APIs allow for two more pieces of trading software to be linked up, functioning as one. This allows users to access the benefits of multiple pieces of software. APIs are not always required, as a user could simply run the two or more programs independently on their computer, although the programs will not communicate with each other.

Types of Trading Software

There are different types of trading software with different features provided by both brokerages and third-party developers.

Some of the most common features include:

  • Placing Trades: Most trading software has the ability to place trades, including market orders, limit orders, and other advanced order types, as well as the ability to look up real-time quotes and view the Level 2 order book. Some software will also track trading statistics, such as win rate and average profit/loss on closed trades.
  • Technical Analysis: Most trading software includes interactive charting capabilities, including both chart patterns like trendlines​​​​​​​ and shapes, as well as technical indicators like moving averages or momentum oscillators.
  • Fundamental Analysis: Some trading software provides access to fundamental information, including financial statements, analyst ratings, and other proprietary tools designed for investors to simplify their due diligence.
  • Programmatic Trading: Advanced trading software enables traders to develop trading systems that can be executed automatically rather than having to manually click a button. In addition, these software solutions may provide backtesting​​​​​​​ functionality designed to help traders see how their automated trading systems would have performed in the past.
  • Paper Trading: Some trading software includes the ability to place riskless no-real-money trades, which is known as paper trading. Traders can test out their skills to see how they would perform before committing actual capital. This feature is especially common among brokers in the forex market.

Deciding on Trading Software

Before deciding on trading software, traders and investors should carefully consider what features they need. Active traders that rely on automated trading systems may choose entirely different trading software than an investor who is only looking for the ability to place trades.

Software applications may have different fee structures, performance characteristics, and other factors that impact profitability.

Most brokers and software developers allow potential clients to test out their software before committing to buy it or open an account with the broker. Take advantage of this by trying out several pieces of software. See which tools and features you like and utilize. Then weigh the pros and cons of the broker (if applicable) and their commissions.

If you like a particular broker, because of their low-fee structure for example, but you don't like their software, you may still be able to find third-party software that you can utilize through an API or independently.

For example, if you don't like your broker's charting capabilities, you could subscribe to a third-party charting service/software you do like, and utilize that in conjunction with your broker's trading capabilities.

Real-World Examples of Broker and Third-Party Trading Software

Most brokers have their own trading software, although some provide third-party software. For example, in the forex industry, many brokers have their own software, but many also provide MetaTrader4 and/or MetaTrader5, which is a commonly used third-party trading platform.

In the stock market, most brokers provide their own software. Here are some large brokers and their software.

  • Fidelity provides Active Trader Pro and $4.95 stock trades.
  • Interactive Brokers provides TWS and a low-cost per-share fee structure.
  • Charles Schwab provides Streetsmart Edge and $4.95 stock trades.
  • TradeStation provides TradeStation and is popular among day traders and active traders.
  • TD Ameritrade provides the thinkorswim trading platform and $6.95 stock trades.
  • There are also several third-party software and trading platforms that are widely available.
  • The NinjaTrader platform provides charting, analysis, and trading capabilities and can be linked up with several brokers.
  • TradingView and StockCharts provide technical and fundamental charting tools. These tools can supplement the charting capabilities provided by trading platforms.