What is Autotrading?

07/05/2023 11:35 AM By Scott Andrews

You do not need to understand the engineering marvels of a 6-cylinder inline engine in a BMW to enjoy its silky smoothness, power, and efficiency.  The same can be said for InvestiQuant’s hands-free, autotrading programs. However, it’s always important to understand the basics of an investment strategy, especially when trying to make the optimal investment allocation decision for one’s portfolio. 

In simple terms, autotrading is the fully automated execution of a trading strategy within an investor’s brokerage account. Most successful autotrading strategies are created by experienced, professional developers who license them to other traders and investors who wish to take advantage of the diversification and capital growth opportunities provided by the systematic, short-term trading of stocks, commodities, and currencies. 

By licensing their autotrading programs to others, developers can monetize the excess capacity of their strategies. Investors benefit by leveraging the expertise and capacity of a highly experienced 3rd party firm, like InvestiQuant (which has spent nearly two decades refining its automated hedge fund strategies). 

Why Not Trade My Own Strategies (Or Follow Those of Another Trader?)

Attempting to develop and profit from the creation of one’s own trading strategy, or following the signals of a “trading guru,” is fraught with risks and the odds of success are low.  Learning how to trade the markets consistently well (i.e. profitably) requires a well-funded account and many years of hands-on experience navigating the markets and managing risk across a wide range of conditions and volatility regimes. For most retail traders and investors, autotrading is the superior alternative and optimal path for pursuing their financial objectives. 

(Disclaimer: All investment techniques involve risks. Investors should carefully consider their financial situation before licensing an autotrading solution.)

How Does Autotrading Work?

Autotrading is accomplished using one or more trading strategies that utilize algorithms (software code instructions) to evaluate market data using predetermined rules to identify attractive trading opportunities. Based on their performance in similar market situations historically, it is reasonable to assume that professionally designed and engineered strategies will generate trading profits in the future as well.

When the rules are met for a strategy, a buy or sell signal is electronically submitted instantly, along with pre-established target and stop loss rules, from the developer’s software to the broker. The broker’s software executes the strategy as a trade order on behalf of one or more client accounts at a market exchange (e.g. Chicago Mercantile Exchange, New York Stock Exchange, etc.) - typically without any human intervention whatsoever, other than providing oversight as a risk-management and quality control measure. 

By systematically evaluating and executing trades based on strict parameters, counter-productive human emotions (fear, uncertainty, and many cognitive biases such as loss aversion, recency bias, anchoring, and confirmation bias) are removed from the process. Efficiency is increased as time is saved, and multiple strategies can be executed flawlessly, simultaneously. The net result is a significant increase in the probability of achieving the full profit potential of the strategies.

If you think autotrading might be just what you’ve been looking for, check out InvestiQuant’s industry-leading solutions here: 

Automated Hedge Fund Strategies for Investors

Automated Trading Solutions for Traders

Invest Smarter. Every Day. 

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Scott Andrews