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How do I Choose the Best Online Trading System?

Article Details
  • Written By: Jessica Ellis
  • Edited By: Bronwyn Harris
  • Last Modified Date: 01 November 2018
  • Copyright Protected:
    2003-2018
    Conjecture Corporation
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An online trading system can be a means of managing online investments through a system of rules and parameters. Choosing an online trading system may depend on the market an investor is trading in, his or her personal understanding of trading systems, and the recommendation of a broker. In order to choose the best online trading system, it is important to have a good basic understanding of how these systems are used.

Simply put, a trading system is a set of rules that guides buying, selling, and trading on a market. The system is meant to break down trading into a simple set of repeatable circumstances, intended to maximize profit. The rules of an online trading system are typically created based on a particular theory of trading, such as trend following. Some of the common factors included in an online trading system are set conditions for when to buy or sell, and algorithms for how much should be spent based on the size of a portfolio and the condition of the market.

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When choosing a trading system, it is important to carefully consider the personal style and goals of the investor. Personal factors that can help determine which trading system to use include portfolio size, understanding of the various markets, and financial goals for the future. Setting goals may be particularly important, as it gives a standard against which to test results of a trading system; if a system is under-performing compared to reasonable goals, it may be time to switch trading strategies.

Gathering knowledge and education about the various theories of trading can help a person identify the system or systems that may be right for him or her. There are dozens of books available on trading methods, strategies, and markets, all of which can help a new investor gain a more comprehensive understanding of the financial trading world. In addition, online guides to trading systems are numerous, and can give an investor fast, basic information about the principles of a particular strategy or system.

Online trading systems may be created through an online broker or may use specialized software. There are many different options, some of which may be recommended by a particular broker or website. Some systems allow only specific trading systems to be followed, while others allow for more customization based on personal factors. To test out a particular online trading system, try to find simulation programs, some of which are offered for free on the Internet. These allow an investor to spend several days or weeks testing out an online trading system or method to see likely results of a real investment.

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