Day Trading

Trade Like The Hedge Funds Using Automated Futures Trading

It is no secret that hedge funds, private trading groups and large financial institutions make use of automated futures trading

systems for their daily trading operations. These systems are developed by the mathematical geniuses or quants that they hired

from the universities. Usually professors in mathematics or economics. They derived theoretical mathematical models to take

advantage of the observed inefficiencies in the futures markets. If you are curious about what are automated futures trading

systems, read on.

Futures Trading In The 70s

Futures contracts are traded in the trading pits among the traders. The first time you visit the trading floor, it can be quite messy,

seeing pit traders shouting and using strange hand signals. It is like a secret language that is common to the insiders. One unique

feature is that everyone can see what everyone else is buying or selling. If you know who is always making profits, you can easily

follow whatever that person trades.

Modern Day Trading

Today, with the improvements in the computers with greater processing power and connectivity, pits trading is slowly being

phased out. Many futures brokerages have been established and they provide futures accounts that are able to place transactions

directly with the futures exchanges. You can say that pit-trading has moved out of the pits and right into any place that has a

moderate speed internet connection and a computer, right into your homes.

There are enormous financial opportunities right now. It just requires $5,000 or less to open a futures trading account with any

futures brokerages. Whereas, a pit-trader used to need at least $100k to buy his place in the pits for a year.

Birth of Automated Futures Trading Systems

The futures brokerages go a step further by providing the capability of connecting a computer program to a futures account or

providing what is known as Automated Futures Trading.

When a human trades the futures markets, he looks at the price charts, identify trends, analyze data, and then calculate their risk

and reward. All these actions can be programmed into the computer and be executed automatically.

Many advantages exist in automated trading. It eliminates human errors, removes emotional responses to the market movements,

increases opportunities by scanning as many futures markets as possible, such as bonds, currencies, indexes, and commodities, in a

split second and places transactions in the next. This is much faster, and more accurate than a human being.

To ensure performance consistency and reliability, the automated system is back tested with historical price data, simulating

thousands of transactions, executed in bull and bear markets, spanning over many years. With such a rigorous testing, only the

best and profitable automated systems survived and are put into live trading with real money.

You can learn more about automated futures trading and how to build an automated futures system for yourself.

Also, stay informed with the weekly updated commitment of traders futures heatmap to get a quick overview of the futures

markets.

Visit his “what are futures” website on futures for absolute beginners.

About the Author

Edmund Peh is an expert in trading and runs the very successful and popular website about futures for beginners [ www.futures-explained.com ]. He has helped thousands of people to get started in futures trading. Visit What Are Futures right now for more information on futures.

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