Automated trading system is an automated software that helps creates rules and automatically implements them to execute and submit orders to the stock exchanges. They comprise of the rules and help in entry, exit as well as trade management following the guidelines and order provided by the user.
The rules can vary from being simple conditions, such as moving average crossover, to complex containing high level programming depending upon the user and the trading platform. Nevertheless, all the systems must be synced with the respective direct access broker; all rules and guidelines must be framed in the respective platforms provided.
Automated trading system comes along with a lot of advantages for users. It takes the human emotions out of the equation. Once the system is provided with rules, there will be automated decision making. Unlike manual trading, there will no signs of hesitation whether to invest or not. It enables traders to perform backtesting i.e. applying the rules on the previous values of same stock to determine its viability. It can also give an edge over trade rivals by increasing the entry speed of the order. This is because when the stock values change, the system generate suitable orders and makes the necessary changes. Due to the process being automated, it is completed faster. Henceforth providing you an edge over other traders.
Every boon carries a curse however small it might be. Automated trading systems are highly affected due to the system or mechanical failures like loss of server, power cut, etc. In some cases the order might reside on computer instead on network thus causing a failure if there is a loss of server. Also if the computer loses its power source, the order will not be sent to the market robbing the trader of chance to make profit. It needs constant monitoring and the system needs optimization from time to time to keep the orders in check with current market.
We may say that ATS is not a substitute for manual trading due to its drawbacks. However, people still practice it and successfully increase the number of zeros in their bank balance.