Automatic execution is a process for executing trades without manually imputing them. Also, automated systems let traders take advantage of trading signals to buy or sell an asset if they generate the signal. Thus, the trader doesn’t need to put the order manually. They can make the orders automatically based on a different set of technical indicators and trading systems.
Automatic execution is now a commonplace due to trading systems becoming more sophisticated and complex and with progress in technology.
Professional traders, market makers, and several retail traders often use automated trading strategies. An exception of this is the foreign exchange or forex market, where most retail traders have access to automated trading strategies and programs.
As the forex market trades non-stop, these automated algorithms might help ensure a trader does not miss out on profitable chances. The fueling of particular signals like those based on price, volume, and other criteria can support the trader in capitalizing on opportunities even when they are not sitting in front of their trading terminal.
Moreover, automatic execution enables orders to be filled automatically after placing, without additional confirmation from the trader operating the automated trading software. With that, it makes order placements a lot quicker, which might assist in having better prices when prices are moving rapidly – a manual order might need a few seconds or more to enter. Still, an automated order is deployed in milliseconds.
Then, automated execution lets the trades to fill when the trader who is operating the program is not present. When a trade signal happens, an order will be deployed and automatically executed if there is liquidity available at the order price.
Meanwhile, automated execution could help traders profit when they require quick orders, or the trader failed to monitor the market. With that, automation might also be disruptive. As automated trades can execute immediately, markets can be subject to extreme disruptions and anomalies.
Market disruption is an event where markets cease to function conventionally, most of the time characterized by rapid and substantial price moves.
For instance, the Dow Jones Industrial Average or DJIA on May 6, 2010, dropped around 9 percent within ten minutes. Nonetheless, the market erased a massive part of that fall before it closed. This disruption became famous as the 2010 Flash Crash. And they think it was caused – to a great extent – by automatic trading programs that started to sell as other programs sold, making a domino effect.