How does automated trading work?
With automated trading, you’ll be speculating on the rise or fall of the underlying market price using either spread bets or CFD trades.
First, you’ll choose a platform and set the parameters of your trading strategy. You’ll then use your trading experience to create a set of rules and conditions (called parameters), and then your custom algorithm will apply the criteria to place trades on your behalf.
These factors are normally based on the timing of the trade, the price at which it should be opened and closed and the quantity. For example: ‘buy 100 Apple shares when its 50-day moving average goes above the 200-day average’.
The automated trading strategy that’s been set will constantly monitor financial market prices, and trades will automatically be executed if predetermined parameters are met. The aim is to execute trades faster and more efficiently and to take advantage of specific, technical market events.
Remember that these trades will be leveraged, because they are made using spread bets and CFDs that happen to be automated. This means you’ll put down a small deposit (called margin) to get exposure to a larger position. Both profits and losses are calculated based on the position’s full size rather than your smaller margin amount, which means you run the risk of losses outweighing your initial deposit.