The Pros and Cons of Using Automated Trading (How Profitable Are Trading Bots?)

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By Jacob Maslow

The digital revolution contributed a massive impact on the virtual market trading world. Diversification became a thing and online platforms had proliferated to make the lives of the investors more convenient. Nowadays, investors can simply input words and numbers using their digital tools, and ask online platforms to do this-and-that. What’s more interesting is the birth of algorithmic trading or better known as “automated trading”, which had indeed brought trading into a whole new level of awesomeness. Right now, it is already marking its name and has begun to positively affect the Forex market.

An automated trading system comprises a set of rules created for an investor. In fact, it possesses the power to create fixed rules, especially in terms of trade entrances and exits, which will then be repeated automatically and digitally. For this to work, there’s a need for an investor to program the system; but after this, the investor’s orders are set to be executed by the computer automatically. No more complexity. It’s very simple since the system makes use of certain software that directly connects traders to brokers.

Having been programmed, the system explores the market, keeps track of its movement in real-time, and looks for any opportunities of buying or selling stocks depending on the investor’s inputted strategy in doing trades. If the trade has been established, the computer generates stop loss and then takes profit orders automatically. This will ensure optimum efficiency in dealing with large orders. With this, investors can manage their time effectively, by yielding good returns.

However, several points have to be considered. With perks are also drawbacks that you must know as an investor. Before venturing forth to this very profitable investment strategy, discern these pros and cons.

Pros of Using Automated Trading

  • Free from Emotional Attachment

Because of automated trading systems, a lot of traders were saved from investing their emotions during the process of trading. Automated trading is responsible for monitoring and accomplishing trade orders the very moment rules were set in place. Traders may stay on track, keep in touch with the plan, and control his/her too much inquisitiveness about the trade. This is good news and an amazing boost to cowardly traders, those who’re indecisive, always hesitant to gamble, and unwilling to embrace the risks that come along with trading. Because of this, the tendency to overtrade will be reduced.

  • Backtesting

One feature automated trading can offer is the chance to backtest, meaning, traders can assess the effectiveness of their trading idea using past market data so that they can find out if the idea is viable. This can be done because traders can have their precise and absolute sets of rules, then test them on past data. Through this, traders can come up with sound decisions before risking their cash in live trading. Specifically, automated trading helps the traders know the average amount he/she can anticipate to gain (or loss) per unit of risk.

The market is always volatile, and this can cause hesitations to a trader. But with automated training, a trader is kept disciplined in spite of the worst days in the market. This is possible because rules of trade are firmly and accurately set, and the execution is automatic. Overflowing emotions like fear at taking risks, paranoia at potential losses, and the urge to overtrade are thrown out in the bus. That’s why automated trading really ensures a steady and firm execution of a trading plan.

Talking about trading plans, a trader must have to devise a strategy to succeed in trading. But even if traders have rigid plans, failures will always be lurking in the corner. For example, although all traders expect their trade to yield profits, they are sometimes overridden by emotions and would definitely not bother following the rules of altering any expectancy the system has. Whenever a plan fails, so are the trader’s fighting spirit and motivation. The psychological effect of grave losses can haunt traders in their sleep. Even if in the next trade, the trading plan poses the great potential to win 100%, it may be too late because the trader skipped due to trauma, and his expectancy in the system had dried up, too. In a heroic attempt to maintain consistency, the automated trading system is a game-changer.

Cons of Using Automated Trading

  • Technical Problems and Internet Issues

Automated trading may look less complicated, however, the setup, programs, and even software add up to its sophistication. Automated trading as an online platform requires a computer, and the internet, too. If the internet breaks down, so is the computer. Internet failures can lead to discrepancies between the components of the platform and the trade theorized, which will eventually lead to unimaginable losses.

Although scenarios like this seldom happen, it will still pose a burden to the trade, especially if the system is set up not on an underlying server. For example, network crashes and an intermittent internet connection can hinder a trader from executing an order, which will cause a big miss out on big deals and great opportunities in the market.

  • Potential Mechanical Failures: Monitoring Required

If you are tempted to just let your computer do the trading for you forever, without proper monitoring, checking, and simply glancing on it, then you might be disappointed. Remember that anything can happen, like a power outage, computer crash, connectivity issues, technical problems, system mishaps, and the list goes on. Without monitoring, you might meet some misfortunes in trading along the way, like anomalies which can result in erroneous orders, duplication of orders, or orders missed out. The more rigid the monitoring, the better is the problem resolution, and the faster it will take to get back on track again.

  • Over-Optimization

You will achieve a 100% win in trading if your trading plan is unreliable or is unrealizable. Automated trading offers backtesting which can also generate systems that look fine and do poorly, systems that appeal on paper, but perform weakly in the live market.

Over-optimization pertains to the tendency to excessively curve-fit one’s plans sacrificing the reliability of the plan. Some traders make incorrect assumptions with regards to their plans, thinking that their plan will result in high-profit trades. Be cautious of too much time refining or in overly cultivating a strategy grounded on certain test results, or else you might fail in the real-time and live marketplace.

Are Trading Bots Profitable?

Now that you have full awareness of the advantages and disadvantages of the automated trading system, still, you might wonder, “Are trading bots profitable?” Read on to find out.

Trading bot is a reputable program available worldwide. It can link to a user’s cryptocurrency exchange and execute trades on a trader’s behalf. This program employs various signals and indicators, which include moving averages and indices. Its main goal is to assist the users in making profits while maximizing their time very well.

Most people assume that bots surpass trade’s ability in trading because of its ability to analyze complex calculations and it’s mathematically-equipped know-how on probability. The use of trading bots will help you earn great profits, so long as you are an expert on configuring the bot.


Technology is undoubtedly evolving for the interest of man. Its potential is insurmountable, as investors adjusted the traditional trading techniques to fit the modern age. But these platforms have risks, too. So be fully furnished with experiences in trading and have sufficient foundations on it before you dive yourself into the automated trading system.

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