What is the Difference Between AutoTrading and AlgoTrading?

In this post, we’ll take a look at:

When we come across a new term in the financial markets, it is decisive to learn everything about the new term, precisely and comprehensively, so as not to make mistakes in interpretation. Sometimes, mistakes may cause losses.

The two terms, AutoTrading and AlgoTrading, will be discussed in the following paragraphs, and the question of the similarities and the differences between these two concepts will be answered, once and for all.


AlgoTrading and AutoTrading 

In fact, the similarities and the differences between Auto- and AlgoTrading are included in the definition of these terms. Both terms are referring to the financial markets and trading, but not manual [or traditional way of] trading.

Years ago, not far from today, traders used to manually check the charts of different financial assets, news, market conditions, etc. They tried to find a way called finding or creating a trading strategy by using existing tools such as technical analysis indicators, to earn profits in the market. (Still some traders do the same!)

With the introduction of computers into the financial markets, everything changed and became much faster. Computers are great for high-frequency, repetitive computing tasks. But unfortunately, they do not have the power of inference; therefore, traders were not eliminated, but their role was changed.

With the help of computers and programming, Expert Advisors or trading robots were created. Opening and closing the trades in the trading platforms were now automatic. In this sense, a lot of progress was made and the automation solved many challenges for traders.

Years later, a concept called algorithmic trading was introduced. Many traders still do not know the difference between the automation in trading platforms and algorithmic trading.



Briefly speaking, autotrading means opening and closing trades automatically. The definition is much simpler than you might think.

In autotrading, first, there should be a trading strategy. A trading strategy is nothing but knowing or specifying the entry and exit points. A trader, normally, finds a trading strategy using his or her technical and fundamental tools and knowledge, and also watching the market.

After he or she reaches a relative certainty about his or her trading method, that this method can be profitable, then he or she, with the help of a programmer, converts it correctly into a code or trading robot.

Backtest, or testing the robot’s performance in the history or the past years of the market is the next step, that is usually done in the trading platform’s Strategy Tester.

With the successful backtesting, the trading robot will run on the trading platform and on a real account. Now, opening and closing trades, enter and exit, is handed over to the trading robot. The trader only monitors the performance, and in case of any dangerous situation like high volatility, he or she may remove the trading system to stop losing money.

This is exactly AUTOTRADING. The process of opening and closing the trades automatically.



Algotrading or algorithmic trading has a more complex story. In algorithmic trading, there are much works to do, but nothing in manual anymore.

1) No more market watch, testing different indicators, and trial and error to find a trading strategy (or the right entry/exit points) is needed.

2) The backtesting process is not done by the trader anymore. The trader only prepares (downloads) the historical data.

3) Trading strategies are built using Artificial Intelligence or AI from scratch, either with or without programming, with or without software like StrategyQuant X.

4) There are various capabilities such as money management, defining custom filters, ranking the trading strategies, and applying various controls available in algorithmic trading.

5) Robustness or quality tests are the next exclusive item that can be reached only using AI or a powerful software providing such technology. These tests help you to evaluate the quality of your trading strategies in different market conditions, including extreme fluctuations.

6) Optimization and Walk-Forward are the last options. A professional trader knows that the markets are constantly changing. But trading strategies are not smart enough to adapt to these changes. Therefore, all trading strategies need to be re-optimized after a certain period in order to define the new market conditions for them.

When should we re-optimize our trading systems? Walk-Forward test tells us the answer.

7) Finally, in algorithmic trading and AI, there is a feature that can define all the above steps as automation, so that everything can be done automatically by pressing one button, from start to finish.


Differences and Similarities 

It seems that now it is quite enough clear that AlgoTrading is totally different with AutoTrading. In fact, you may conclude that AutoTrading is a simple part or a small piece of the algotrading puzzle, and its mission is only to execute trades automatically.

Algorithmic trading is big world, and it is just the beginning, while the role of artificial intelligence is becoming more visible every day.


It is believed that after reading these lines, you will understand the difference between the two very important concepts, AlgoTrading and AutoTrading, and never use them interchangeably.

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