Over the last few years, most of the everyday activities have been automated. In the finance sector, technology is being used to help novice and experienced traders maximize their returns. That’s because automated trading methods tend to be more effective than manual techniques. This article takes a look at Algorithmic trading and copy trading. You will get to understand why they have become popular in recent months.
Understanding Algorithmic Trading
Algorithmic trading is a technique that involves using a computer to find and execute profitable trading opportunities. While this trading concept is becoming popular now, it is not entirely new to some players in the financial sphere. Most institutional traders, like mutual funds or hedge funds, adopted algorithmic trading years ago.
The reason many retail traders never engaged in algorithmic trading in the past is that setting up an automated trading system was not cheap. However, these days, retail traders can access such trading systems and even build their own using platforms such as ProRealTime and Meta Trader 4.
Understanding Copy Trading
Besides algorithmic trading, copy trading has also seen massive adoption over the past few months. It involves beginner traders following the trades of seasoned traders. Again, this trading concept has been made possible by technology. There are several crypto exchanges that support copy trading. They include Bybit, BingX, and Gate.io.
Risks Associated With Copy Trading and Algorithmic Trading
Understanding the concepts of copy trading and algorithmic trading, especially if you are a beginner, can help you earn profits as you continue learning to trade. However, you should not ignore all the risks that these two trading methods carry.
Firstly, regardless of the trading technique used, be it copy trading, human trading, or algorithmic trading, you must keep in mind that trading in the financial markets is a high-risk venture. That means without proper risk control measures, you can suffer significant losses.
Secondly, remember that technology is here to support and not replace us. As human traders, we are responsible for formulating trading strategies before letting computers do trade execution. Therefore, these strategies may not work sometimes, thus leading to losses.