Automated trading system

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An automated trading system (ATS) is a computer trading program that automatically submits trades to an exchange. Automated trading systems are often used with other forms of electronic trading, such as electronic communication network, "dark pools" and algorithmic trading.[1] As of the year 2010 more than 70% of the stock shares traded on the NYSE and NASDAQ are generated from automated trading systems.[citation needed] They are designed to trade stocks, futures and forex based on a predefined set of rules which determine when to enter a trade, when to exit it and how much to invest in it.Trading strategies come in many different shapes and sizes, some preferring to pick market tops and bottoms, others coded to ride the daily trend, and everything in between. [2]

Trading system designers / programmers often test their automated trading systems on historical or current market data in order to determine whether the underlying algorithm guiding the system is profitable or not. Backtesting software are special trading platforms which enable trading system designer to develop and test their trading systems on historical market data while aiming to produce optimal historical results. While it is largely impossible to test how your gut feelings and intuitions about a market would have performed in the past, automated trading systems can easily be backtested using historical prices to see how the system would have performed (hypothetically) if it had been active in past market environments.[3]

There's also what's referred to as Forward Testing. Given the limitations of backtesting, automated trading systems run in real time on live market data. This out of sample test can help confirm the effectiveness of the trading strategy on today’s market climate and expose any problems inherent in the code.[4]

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Notes[edit]

  1. ^ Lemke and Lins, Soft Dollars and Other Trading Activities, §§2:25 - 2:29 (Thomson West, 2013-2014 ed.).
  2. ^ http://www.automatedtrading.com/why-automated-trading/
  3. ^ http://www.automatedtrading.com/why-automated-trading/
  4. ^ http://www.automatedtrading.com/why-automated-trading/