Automated trading binary option robot 2014 are often used with electronic trading in automated market centers, including electronic communication networks, “dark pools”, and automated exchanges. The automated trading system determines whether an order should be submitted based on, for example, the current market price of an option and theoretical buy and sell prices. The theoretical buy and sell prices are derived from, among other things, the current market price of the security underlying the option. A look-up table stores a range of theoretical buy and sell prices for a given range of current market price of the underlying security.
As orders are processed automatically once the pre-set rules are satisfied, emotional mistakes are minimized. It also helps traders to stay disciplined when the market is highly volatile. Before actually using the automated trading or the underlying algorithm, traders are able to evaluate their rules using the old data. It allows the traders to minimize potential mistakes and determine the expected returns.
As orders are processed only when the pre-set rules are satisfied and traders only trade by plan, it helps the traders achieve consistency. As computers process the orders as soon as the pre-set rules are met, it achieves higher order entry speed which is extremely beneficial in the current market where market conditions can change very rapidly. Automated trading systems allow users to simultaneously trade in multiple accounts which allows them to diversify their portfolio. Diversifying the portfolio allows the users to minimize their risks by spreading the risk over various instruments.
Even though the underlying algorithm is capable of performing well in the live market, an internet connection malfunction could lead to a failure. Although the computer is processing the orders, it still needs to be monitored because it is susceptible to technology failures as shown above. An algorithm that performs very well on backtesting could end up performing very poorly in the live market. Good performance on backtesting could lead to overly optimistic expectations from the traders which could lead to big failures.