Automated trading system

An automated trading system (ATS), which is a subset of algorithmic trading, is a kind of trading that involves the use of a computer programme to generate buy and sell orders, which are then automatically sent to a market centre or exchange. A trading strategy that is based on technical analysis, advanced statistical and mathematical computations, or input from other electronic sources may be used by the computer programme to automatically generate orders. These orders will be generated based on a set of rules that have been predefined by the user.

Electronic communication networks, "black pools," and automated exchanges are all examples of automated market centres that make use of automated trading systems. These automated market centres also facilitate electronic trading. Trading platforms that use automation and automated trading systems are able to do repetitive operations at rates that are several orders of magnitude faster than any person could achieve. Traditional risk controls and safeguards, which depended on human judgement, are not suitable for automated trading; as a result, this has led to problems such as the Flash Crash in 2010. To address the issue of automated trading systems, several electronic markets have included novel controls such as trading limits or 'circuit breakers.' These controls are intended to prevent excessive market volatility.

The current price of an option on the market as well as theoretical buy and sell prices are two of the factors that are considered by the automated trading system when determining whether or not an order should be placed. The current market price of the underlying asset is one of the factors that is taken into consideration when determining the theoretical buy and sell prices of an option. A look-up table is a database that holds a variety of hypothetical purchase and sell prices for a specified range of the underlying security's current market price. Therefore, if the price of the underlying asset changes, a new theoretical price may be indexed in the look-up table. This allows for the avoidance of computations that would otherwise cause automated trading choices to move more slowly. The many stages of a negotiation between a market maker (quoter) and a prospective buyer or seller are each represented by structured messages in a distributed processing online automated trading system (requestor).