Finance
Investing in an Automatic Trading System, a Few Tips and Tricks When Using Them

Investing in an Automatic Trading System, a Few Tips and Tricks When Using Them

Trading bots, automated trading systems that buy and sell shares and CFDs on a computer basis, have existed for a long time and are often viewed critically by the public. Used correctly, however, they are a valuable instrument for strategic investment.

  • Automated or algorithmic trading systems that buy and sell foreign exchange, shares and CFDs computer-based at high frequency and by exploiting short-term price fluctuations have existed for some time.
  • Analysts often view these so-called trading bots critically. Used correctly, however, trading bots are a valuable instrument of strategic investment. Investors who do not want to rely solely on the algorithms of the money houses could also consider developing their own trading platform.

In the first part of this article, I will briefly discuss the general framework for trading foreign currencies. The second part of the article will deal with the question of what the basic framework of a trading bot might look like.One of the most frequently used bots is the Spanish version of OPBINA1 which trades in the so-called opciones binarias en Argentina.

Currency Trading

Market Access

First, the trader needs a trading account with a financial service provider. This can be a bank, a savings bank or a special broker with a licence from the financial supervisory authority. The intermediation of a trader is necessary because traders as private individuals are not allowed to participate in exchange trading for market regulatory reasons. Companies are also only permitted under legal conditions.

Decision-making

The trader’s correct positioning in the market is based on technical analysis. This methodology examines price developments of a currency pair (for example, EURO/USD) in the near and distant past. Using various indicators, price patterns and measuring methods, an attempt is made to derive forecasts for the price trend in the future for the respective currency pair. Using chart programs, market data of a currency pair (EUR/USD) is presented in detail in curves or diagrams so that the trader can evaluate them as specifically and quickly as possible at trading sites such as Commoditytradealert.com

Market Entry

Once the trader has arrived at an assessment of the future price trend, he can place his order with the broker. Before opening the order, the following specifications are made:

  • Traded currency pair (for example EURO/USD): In this case, the euro is the base currency, the US dollar the trading currency. Price or rate changes always refer to the base currency.
  • Size of the traded position (lot): A distinction is made between a whole lot (100,000 units), a mini-lot (10,000 units) and a micro-lot (1,000 units).
  • Pip value: The pip value is the unit that represents the smallest change in a currency pair. The value is calculated from the size of the lot and the exchange rate.
  • LONG or SHORT positioning: If the trader bets on rising prices, he positions the order LONG, as it is called in stock exchange jargon, if he bets on falling prices, he goes SHORT. In our example, LONG means buying EURO and selling USD.
  • Stop Loss: This threshold value is something like an emergency brake in case the market forecast proves to be wrong. If the purchase price falls below or exceeds the stop loss value by a certain number of pips due to the market development, the trade does not take place.