The result was that today more and more brokers from this area of financial products provide automatic trading systems. As the name suggests, these systems act fully automatically or optionally semi-automatically, so that you as a trader just do not have to sit in front of the screen all the time and follow the courses. The purpose of the automatic trading systems is precisely that they make the decision for you as a trader when and to what extent which underlying asset is bought or sold. But how do these automated trading systems work in detail?
How do automated trading systems work?
You don't have to understand in detail how automated trading systems work in any technical way. It is only important that you know that the automated trading systems normally do not trade completely autonomously, but you have to make some settings beforehand. For example, you can set the following key points, which will then be taken into account by the respective automatic trading system:
- maximum capital investment
- selection of certain assets (e.g. only shares)
- maximum tolerated loss
- profit taking from X percent
- other specifications
With automated trading systems you have the possibility to limit the tradable assets as well as the capital investment and possible profits and losses. However, on the basis of these specifications, the automated trading systems then work completely autonomously. This is done on the basis of certain trading signals, which are recognized by the trading systems. If, for example, there is a prominent trading signal in metatrader 4 Exness for crude oil that indicates rising prices, the trading system would initiate a buy order based on your information. All further reactions, such as selling or holding the position, are then again based on your specifications, for example in the way you would like to realize a profit.
Stop Loss and Take Profit Order as Alternatives
Not all traders are comfortable with automatic trading systems, because they make their own decisions under certain conditions, which not every trader likes. However, there are alternatives that also make it possible for you not to have to follow the price development live all the time. These are certain types of orders that are offered by numerous brokers, especially when trading CFDs and forex, namely:
- Stop-Loss Order
- stop-buy order
- Take-Profit Order
These and some other order types are available at more and more brokers, so that you as a trader also have the possibility to initiate a limited automatic trading in a certain way via this way. We would therefore like to briefly introduce the most important order types below.
Stop Loss Order: Limit losses or secure profits
The stop-loss order is probably the most important order when it comes to limiting any losses. First and foremost, the stop-loss order is used to generate an automatic sale and thus the closing of the position when a certain price is reached. However, depending on the ratio of the buy price to the current price, this order can also be used to secure profits that have already been made temporarily and to realize them through the automatic sale. Usually, however, the main task of a stop-loss order is to limit any losses.