The growth of automated trading in binary options has broadly mirrored the developed the use of automated trading in other trading markets. It is now possible to trade with partially or fully automated strategies and trade copiers on most accounts.
The automated trading that these systems provide has lead to them gaining the name of ‘robots’. This is because a binary options robot can be left to automatically trade on a account, in many instances without intervention from the trade themselves.
People want to make money. Automating the trading process offers a way in which almost anyone can trade a strategy on their account, even if they don’t understand the mechanics of trading themselves.
Using automated robots is as simple as opening an account, setting up the software and then sitting back and watching the money roll in. Well that’s the theory!
Mechanical Trading Strategies
It is important for anyone thinking of trading with a binary options robot has to be comfortable with mechanical trading strategies. If you are not then it makes sense to stay clear of ‘robots.’
Robot trading systems lack the capability of rational thought. This means that they don’t have the ability to react to fundamental market changes or news. By their very nature they are only ever able to replicate mechanical strategies. This means a total reliance on technical analysis to identify entry points and exits for a trade.
While this is not a short coming if you believe in the ability for mechanical trading strategies to deliver, it is however worth pointing out if you have an expectation that a robot can deliver anything more.
Does Automated Trading Work?
This is the key question. There is nothing new in the concept of applying automated strategies to financial trading. Many top investment banks use technical strategies to great effect over the years to manage billions of dollars on half of clients. Mutual, Pension and Hedge fund managers frequently rely upon mechanical trading algorithms to trigger buying and selling in the market at predefined prices as a part of their strategies.
However while such algorithms have financial credibility among many established institutions, their application is often somewhat different to the systems marketed at retail binary options traders.
Here it is important to draw the distinction between the risk managed algorithmic trading carried out by top financial institutions and a binary options robot put together over a few weekends by an ‘expert trader’ and marketed for $99.
What Are The Benefits of a Binary Options Robot?
The reason to use a robot is to automate a strategy in order to provide trading consistency. A computer based software package is much more likely to be consistent and trade more accurately than a human trader executing the same strategy.
Furthermore the robot trading system can operate around the clock. It should therefore never miss a trading signal. It is not prone to human error. In fact it is capable of analysing and trading multiple markets at once or even simultaneously putting the human trader to shame.
Risks of Binary Options Robots
There are however risks to trading with robots. Many traders won’t give a thought to these as, so desperate they will be to get the software running o their account as soon as they get their hands on it.
The risks however are real and should be considered when weighing up the pro’s and con’s of binary options robots. While these may not be applicable to each system that you come across, you should keep these points in mind before making a decision as to whether trading with a binary options robot will fit in your trading strategy.
Software Quality
One thing that traders fail to give a second thought to is the quality of software that is doing the trading for them.
Software is not infallible. It tends to reflect the quality of the programmer and their thought process and skill in putting a solution together. Poor coding or simple neglect on the behalf of a developer could end up costing you a lot of money, even if the underlying strategy being replicated is sound.
You will of course have no way of knowing the quality of the product in terms of how it has been programmed or put together and the vendor will not want to expose this. For this reason it is imperative that you test any software thoroughly under a number of different scenarios to ensure that it is reliable.
Use a demo account and check out the software. Make sure it’s reliable and isn’t going to crap out on you and blow your account.
Trading Environment
Do top traders really trade and make their fortunes from a cheap laptop and budget internet connection in their living room? Of course the answer here is no. They invest heavily in the best equipment as they cannot afford to have something go wrong when their money is on the line.
Make an honest assessment of your trading environment. Has it got the power to run automated software without crashing out? Have you got a powerful enough computer to run it? Is it likely that your binary options robot will end up talking to itself if you internet or cable connection goes down?
If you are planning on leaving your system running then you should evaluate your trading environment to make sure it is up to the job. A dedicated VPS to run your systems is cost effective and will offer a reliable platform on which to leave your strategies running.