Looking at the history of trading, previously the trading occurred at open outcry or pit trading. With the development of the sophisticated technology and communication systems the traditional open outcry or pit trading has been replaced by electronic trading. The traders and investors do not have to look for a place for trading rather they can get connected from any comfortable place where connectivity to network exists. Traders also increasingly started to rely on algorithms to analyze market conditions and then execute their orders automatically using information technology systems.

The automated trading or algorithmic trading is used by most of the commodity trading institution which helps to manage risk, transmit and match orders automatically, as well as systems used to confirm transactions, communicate market data and link related systems through high-speed communication networks.

The advantages of High Frequency Trading (HFT); a type of algorithmic trading; are reduced cost of transaction, greater liquidity, greater competition, increased transparency and tighter spreads. Though there are much pros in the automated trading, it is not free from biased. On May 6, 2010, also known as the ‘Flash Crash’, major equity indices in both the futures and securities markets lost more than 5% of their value in a matter of minutes when an automated order led to extreme downward price movement and a liquidity crisis in the Chicago Mercantile Exchange’s (“CME”) E-mini futures contract. Also, in August 2013, trading on the Nasdaq stock market was disrupted for three hours due to malfunctions in quote dissemination systems and potential connectivity issues between it and another trading platform’s systems. There are many issues relating to the problems in automated trading.

The commodity market is vulnerable to flawed algorithms and insufficient testing. One example is the CME Group Inc. (CME), owner of the world’s largest futures exchange, fined a firm for inadequately supervising and testing controls. This shows that though the invention of sophisticated technology has added efficiency in commodity trading, it has too indulged the flaws and independent modification issues.

The U.S. Commodity Futures Trading Commission(CFTC), an independent agency of the United States government that regulates futures and option market, has lately issued notice seeking comments on whether to require registration for automated trading firms or not. CFTC is making its move on reducing the problems relating to automated trading.