The use of trading software is rapidly gaining popularity. In the US alone, over ⅓ of adults hold stock investments outside their standard retirement accounts.
The countless benefits of online stock trading eliminate entry barriers for beginner traders, bringing thousands of new investors daily. In the last two years alone, the average daily trade volume has grown by over 100%, providing clear evidence of the success of automated trading systems.
Now, I’m sure you’re wondering, is it too late to jump on the trend and start using software for trading? The answer is; It’s never too late. Building your investment portfolio using trading software has never been easier or cheaper.
In this article, I will demonstrate how online stock trading can facilitate the growth of your investments. But first, let me explain how automated trading systems work.
Stock trading software analyzes currency price charts and other relevant market activity over multiple timeframes. It identifies signals such as price trends, spread discrepancies, or news that could impact the market and then locates potentially profitable trade moves.
The trading software will monitor the market for you and execute trades, relieving you of the burdens of manual trading. That said, let me show you how online stock trading can come in handy for you.
1. It Minimizes Emotion In Trading.
Hesitation and over-trading are among the primary causes of trade losses. For novice traders, over-trading refers to buying and selling stocks without thoroughly assessing market information. Both hesitation and over-trading are caused by human emotion.
The trading software will keep your emotions in check, making it easier to stick to the plan. The system will execute your trade orders automatically, leaving no room to hesitate or question the trade.
2. It Allows Efficient Backtesting.
Backtesting is a way that traders apply trading rules to historical market data to determine the viability of a trading idea. Computers and software cannot make guesses and must be “told” (programmed) what to do. Therefore, you must manually set absolute trading rules with no room for interpretation.
Quality trading software enables you to test your precise set of rules using historical market data before risking your funds in live trading. You can evaluate and fine-tune an idea with careful backtesting to minimize potential losses.
3. It Improves Order Entry Speed
Markets often move quickly; therefore, getting in or out of a trade position a few seconds earlier often makes a big difference. It can be quite demoralizing to have a trade position reach your profit target or blow past a stop-loss level before entering your orders.
Computers often respond to ever-changing market conditions. Automated systems generate trading orders immediately after the trade criteria are met. Once you enter a position, the software swiftly generates additional demands, such as profit targets and stop losses, to ensure you get all the profits.
4. It Diversifies Trading
Trading software allows you to trade various strategies or multiple accounts simultaneously. The software scans numerous markets for trading opportunities, generates orders, and continuously monitors the trades. This action allows diversification by spreading risk across multiple instruments, thereby hedging against losing positions.
When it comes to trading, there is no one-size-fits-all approach. The same goes for trading software – every program has some trade-offs.
Some trading software available today is excellent and executes orders almost seamlessly. There are also good programs, but they lack comprehensive benefits and features. Lastly, some programs are inadequate and won’t run your trade orders efficiently.
So, how do you know which trading software is worth it?
The following outlines how you can successfully select a trading tool if you’re in the market for one.
I. Find software that best fits your needs.
Trading analysis software varies in performance, programmability, speed, and ease of use. Therefore, what works for one trader may not be suitable for another.
For instance, experienced traders typically prefer a program that offers real-time monitoring, stop imposition, report generation, and other specific market orders. On the other hand, most newbie traders will want a simple program with quick set-and-forget features.
Therefore, ensure you purchase a program with all features that fit your lifestyle. You can get a program with remote access if you travel frequently or tend to be away from your computer for extended periods.
II. Check the fees and guarantees of the provider.
Some software providers charge trading commissions and additional fees, which can reduce your trade profits. Therefore, you must always check the fine print in your user contract before purchasing any trading software.
You can also explore providers that offer software with return guarantees within a specified time after purchase. This way, you can return the program for a refund if you decide it is unsatisfactory.
If you feel like reading contracts and fine print isn’t your thing, check online customer reviews for the program you want to purchase. This way, you can get real-life viewpoints from people who have used the software.
III. Take It for a Test-Drive
Trading software is a costly investment; therefore, knowing if it will be worth your money before you purchase is always best. And the only way to determine the program’s worth is to take it for a test drive.
Always run the training function of the program, or ask for a video tutorial from the provider. You can also call the support desk to get answers to complex programming questions like setting the buy-sell criteria or just general use of the system.
Some providers also offer their program a free, no-obligation test drive, allowing potential buyers to assess its suitability. If so, test the software’s installation and user experience functionality. Also, check if the software is flexible if you want to change any pre-programmed default settings.
There are several cases of scammers when it comes to the automated trading systems market. Luckily, you can avoid getting scammed by conducting due diligence on a firm before purchasing its software.
Ensure you visit the Commodity Futures Trading Commission (CFTC) website to check for relevant consumer alerts. You can also check if the firm is registered on the National Futures Association (NFA) member database.
Whether you are a beginner, experienced, or seasoned trader, investing in stock trading software can enhance your chances of success. As we all know, there are potential risks of loss when trading in any market. However, you can minimize the losses with the right automated trading system.
Remember to maintain a checklist of the essential features you seek in trading software. Additionally, ensure that their customer support is efficient, or take the program for a test drive to assess its suitability for your needs. This way, there won’t be any problem as you use the software in the future.