What Are Options Bots?
Options are special contracts that are traded on financial markets. These are derivatives based on various assets such as commodities, stocks, currencies, and even indices. An option trading bot is a specialized algorithm that uses API to connect to exchanges and brokerage service providers to automatically buy or sell derivatives.
Options have been popular since the beginning of trade. Mostly traded on the Forex market, they are also widely used in the global economy and international trade when middlemen get involved. Today, the notional value of US options alone is evaluated at over $20.6 billion (5-day average). It is a massive market with literally millions of retail traders buying and selling options in all corners of the world.
What does a bot mean in options trading?
A trading bot for options is a powerful tool that can be used by any trader who has an account at a brokerage service provider or exchange. Note that these web platforms must have API supported by a provider of automation. The principle is quite simple:
- You register at a company that offers different automation solutions for traders (for example, WunderTrading).
- Connect your account to the exchange you are interested in. WunderTrading has a long list of compatible web platforms.
- Create a new bot that will take over your account and start trading according to the settings that you will determine during the setup process.
- Edit the script and add commands and conditions. You can also use a preset that will work perfectly for your options trading account.
Some brokers and exchanges have native automation solutions, but the vast majority are focused on copy-trading and spot marketplaces. If you are interested in using a specialized solution fine-tuned to operate in options markets, you should take a closer look at companies that offer such automation products.
How to choose a good bot
It is not an easy task to choose the best options trading bot. Contemporary platforms seem to be offering the same product, but there are distinct differences and some of them determine the potential profitability of your strategy. Below are aspects of the service that affect your user experience::
- The infrastructure of the web platform. You cannot peek at the backend of the website, but there are many other ways to evaluate its reliability. The website should have an SSL certificate, an appealing visual design, and intuitive navigation.
- The variety of products. Many believe that specialization is crucial. However, the variety of products often means versatility and flexibility that make your trading more efficient in the long run. A lacklustre selection of services does not indicate quality.
- Pricing is hugely important. Since many traders are interested in using bots for scalping and day trading, even seemingly small fees can dramatically affect your results. An auto options bot that costs too much will cut through your earnings. Take a look at WunderTrading. It has a free plan with up to 5 bots included.
Should you trade using automation?
Options are often used in leveraged trading and often get a bad rep. However, they can be very profitable when you use suitable strategies and control risks by reducing the leverage size. Using a big credit may look good on paper, but it will eventually lead to the detriment. On the other hand, managing risks by using smaller leverage is often a good way to consistent profitability.
There are many ways to employ options bot trading effectively. There are several important aspects that you should try to capitalize on
- Robots work without drops in performance. People are often affected by various factors including stress, tiredness, the lack of sleep, and more. These issues can affect your overall performance and cause dips in profitability. Automated scripts work 24/7 and never relax.
- You can control risks and reduce losses with well-placed stop loss thresholds. Managing risks and cutting unnecessary losses are two incredibly useful skills. The only issue is that you may not be quick enough or simply forget to set them up. Bots always follow your instructs to the letter.
- People often miss out on valuable opportunities. Robots follow very simple instructions and act when they see a signal without hesitation. Humans often fail to recognize good opportunities to enter the market or overthink simple decisions.
If you believe that you have any of such weaknesses or think that you could use some help in trading highly volatile assets, you should look into options to introduce automation into your trading strategy!
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