Using robots for automated binary options trading

What are trading robots?

Sponsored Brokers With Binary Options Trading

Trading robots, also known as trading bots, are software programs for automated electronic trading. Instead of putting the orders in manually, you program the robot to make buy and sell orders when certain conditions are met.

A trading robot can be connect to a signal service. The signal service provider identifies trading opportunities and send a signal to the robot. Some traders prefer to use signal services for their manual trading since that gives them a higher degree of control, but they also risk losing valuable time since they have to put in orders manually. Additionally, a trading robot does not need to take breaks or deal with life obligations – it is always ready to trade when a suitable market situation arises.

Risk management

Even with great and well programmed trading robots, there is always an element of risk, and it is increased when trading binary options. Binary options trading is considered a high-risk in itself compared to e.g. equity trading, due to the binary nature of the binary option.

Just as with traditional manual trading, it is important to not risk money you can not afford to lose, and you need to have a good risk-management system in place. There are for instance trading options available for binary options where you can use tools such as daily spending limits, overall loss limits, stop-losses, take-profit orders, and more.

A trading robot has the capacity to create a huge number of buy and sell orders in the blink of an eye. This can help traders accumulate big profits, but can just as well lead to big losses. It is well-known that many trading robots struggle to cope with news events since it is constantly reacting to market movements.

The settings for a trading robot can also become less suitable over time, as conditions change, and it is important to keep a vigilant eye on the bottom line. Using a trading robot can help you with your trading, but you still need to stay on top of the situation.

Scams, frauds and marketers who are “economical with the truth”

If someone is trying to convince you to use a trading robot or similar claiming that it will give you access to “risk free trading”, “guaranteed profits”, or similar – be very cautious. Over-the-top claims like these are common among scammers. Exactly how these scammers operate vary. Some will simply sell you a not-very-good trading robot and then take absolutely no responsibility when it quickly depletes your bankroll. Others want you to use their trading robot so you will give them access to your trading account – and then they promptly empty it.

It is important to use a trading robot from a reputable provider and do your own due diligence. Also, limit how much money the robot (an its provider) gets access to. Do not put all your eggs in one basket.

If someone had actually built a trading robot that offered risk-free trading with guaranteed profits, they would probably not be making a living desperately trying to convince hobby traders to use it.

Test it out using play-money

It is a good idea to test the trading robot using play-money to see how it performs and make necessary adjustments before you start risking real money.

A trading robot performing well during tests is definitely not a guarantee that it will be profitable with real money in the future, but it is an indication and data from the simulations can help you spot vulnerable points in the strategy.

Signal service

A trading robot can be connected to a signal service. The signal service provider will send the robot signals which in turn will make the robot generate buy and sell orders. The trading opportunities are typically spotted using an algorithm.

Free signal services are available, but there are also many out there that you need to pay for if you want to use them. The quality varies a lot, and there is not guarantee that a paid service is better than a free one.

What is algorithmic trading?

Algorithmic trading is used to execute orders based on automated pre-programmed trading instructions accounting for variables such as price, volume and time.

One of several advantages with algorithmic trading is that computational resources can act faster than human traders, and large investors can benefit from this by spreading out the execution of a large order.

Examples of commonly utilized strategies:

  • Inter-market spreading
  • Arbitrage
  • Systematic trading
  • Trend following

High Frequency Trading (HFT)

High Frequency Trading (HTF) is characterized by high turnover and high order-to-trade ratios. Many of the common strategies utilized in algorithmic trading rely on HTF.

HTF trading is exceedingly fast, as computers analyse huge amounts of data quicker than a human can and then also put in orders faster than human traders.

Is algorithmic trading common?

Yes it is very common among both institutional investors and others, including hobby traders. Many investment banks, hedge funds, mutual funds and pension funds are today relying heavily on algorithmic trading to manage their positions, but algorithmic trading has also become a tool for a growing number of small-scale retail traders.

By the mid-2000s, over a third of all European and United States stock trades were driven by algorithmic trading. At the London Stock Exchange, over 40% of all orders in 2006 were entered by algorithmic traders.

In 2009, studies indicated that High Frequency Trading firms accounted for over 60% (according to some studies, over 70%) of all United States equity trading volume, but that number had gone down to around 50% by 2012.

Algorithmic trading is by no means limited to equity trading and it has become especially dominating on the forex market. In 2016, algorithmic trading made up roughly 80% of forex orders, and by 2019, circa 92% of the forex trading was carried out by trading algorithms.

Examples of markets where algorithmic trading is on the increase are futures trading and bond trading. When algorithmic trading becomes common in a market, it tends to impact market microstructure and macrodynamic in notable ways.

Using an automated trading system (ATS)

An automated trading system (ATS) is a subset of algorithmic trading. It uses a computer program to automatically create buy and sell orders and submit them to an exchange or other market centre. Automated trading systems can execute repetitive tasks at a very fast pace.

The orders are generated automatically by the program based on pre-defined rules, which in turn will be based on a trading strategy. Trading strategies can for instance be based in input from other electronic sources, technical analysis or advanced statistical computations.

Is ATS trading common?

Yes, it is very common and automated trading systems are currently managing a huge amount of assets around the globe.

While more basic systems existed earlier, the firs ATS service to free market without a human step was launched in 2008. By 2014, more than 75% of the stock shares traded on U.S. exchanges – including NYSE and NASDAQ – originated from automated trading system orders.

Automated copy trading for binary options

There are trading platforms available online where you can carry out automated copy trading for binary options. You pick one or more traders to copy, set the parameters and let the automated software do the rest. At some of these platforms, you can use the parameters to make the copying suit your bankroll and is not obliged to open positions of exactly the same size as the trader you are following.

Of course, selecting suitable traders to follow is important. You also need to keep in mind that a profitable performance in the past does not guarantee that profits will be made henceforth.

On some platforms, you can opt in and permit other traders to copy you. Typically, you will receive compensation from the broker if you become a popular trader to follow. Check the terms and conditions in advance, since they vary a lot between different brokers.