Manual Trader

What is a Manual Trader?

A manual trader enters trades into a trading system without using computerized algorithms that enable automated order entry.

In the frenetic world of trading, manual traders may be at a disadvantage compared to traders who use considerable computing power to exploit pricing anomalies in the markets. Also, manual traders may be more susceptible to trading on emotion compared to a trader relying strictly on a trading program.

How a Manual Trader Works

A manual trader makes buy and sell decisions without relying on automated signals. They also enter trades by hand into a trading system, a process that increases the risk of incorrect or erroneous order entry. Such mistakes can be fraught with disastrous consequences if the error is large. Currency traders therefore increasingly use automated trading systems that enable them to place orders and execute trades efficiently through an application programming interface (API).

A manual trader must rely on their own abilities to maintain discipline and carry out trades as planned. Such a trader must be meticulous in their monitoring of trades to avoid mistakes as simple as buying when they intended to sell and ensuring that trades are executed using the right order types, at the correct prices and in the correct quantities. Program traders, meanwhile, leave the work to computerized systems that rely on algorithms and processing power to automatically carry out error-free trades. Algorithms can also process much more data in a fraction of the time of a manual trader, which is often crucial in identifying anomalies or mispricings that can be exploited for profit.

Advantages and Limitations of a Manual Trader

Manual traders can be influenced by behavioral biases, causing them to make irrational decisions and trade on emotions such as greed or fear. If a stock is rallying on a strong earnings report, for example, it may rise above the manual trader’s sell target. Like a blackjack player after a few winning hands, the trader may decide to let the stock run in the hope of realizing an even larger profit. Should the stock quickly reverse, however, the trader could not only lose any additional profits but a portion of their original investment.

On the other hand, manual traders can take advantage of market signals that an algorithm may be unable to pick up, such as declining volume or wider than usual bid/ask spreads in a particular security. Algorithms trade strictly on scenarios that are programmed in ahead of time while a manual trader can be nimbler and react to breaking news of a merger, an investigation into a company, news about a competitor or a natural disaster.

Example of a Manual Trader

Jane is looking to trade ABC stock. She decides she wants to short ABC once it reaches $60 per share. Currently, the stock is trading at $52.

Because she is a manual trader, she waits a few days to see how the stock is trading. After a week or so, she puts in a limit order to sell ABC shares GTC (good 'til canceled). Once or if the trade is executed, she will get a notification and then decide what her next move is.

Jane is up against others in the marketplace that use advanced algorithms to make buy and sell decisions instantly. These algorithm can also detect shifts in the market that Jane is unable to see with the naked eye. The automated traders have a huge information advantage as well as better execution compared to Jane.