Forex robots can be programmed to automatically carry out certain actions – such as placing buy and sell orders – when certain market conditions occur.
Today, a lot of forex speculation is carried out by forex robots. This is not only true for large funds and institutions but among small-scale hobby traders as well.
A robot can not guarantee that you will be profitable over time. There is always an element of risk, just as with manual trading. A forex robot can be a great tool for the dedicated traders, but do not lose your head and throw things such as proper risk-management to the wind. Continously monitor and evaluate the robot’s performance and adjust when necessary.
A big advantage with a forex robot is that it can stay awake 24/7 and always be ready to jump into action when an opportune moment arises. It can analyse enormous amounts of market data really quickly and use this ability to spot when the pre-defined market conditions are present. A robot allowed to carry out automated trading can react much quicker to market conditions than a human.
There are also traders who like to use robots because they can program them in advance when in a calm mental state and then let them do the job in situations where the human trader would be more likely to be carried away by psycological issues such as uncurbed greed, fear of loss or unwillingness to admit a mistake. A forex robot will not panic and it will not make a mistake because it it is tired, hungry or angry.
What is a forex robot?
Classic forex robots are a type of specialized software (computer program) and they create trading signals based on algorithms. They can then be allowed to carry out trades based on these signals in an automated fashion.
Some forex robots are not used for automated trading; they will only generate trade signals and send them along to a human trader who will make the decisons and enter orders manually. In this case, it is a type of signal service.
What are Expert Advisors (EAs)?
The large third-party trading platform MetaTrader (MT4) call their native robots Expert Advisors (EAs). These robots utilize technical analysis and special scripts to generate trade signals. They can also be permitted to carry out automated trading.
You can use the tools included in the MT4 platform to code your own Expert Advisors. The programming language used is called MQL 4 (MetaQuotes Language v. 4). This is a great way to developed a deeper understanding of the mechanics of trading robots.
If you do not want to build your own Expert Advisors, you can purchase or rent Expert Advisors built by others. There is a big market for selling and buying Expert Advisors for the MT4 platform.
Using a forex robot
Before you start risking real money with a forex robot it is important to know its strengths and weak spots in order to utilize it in an optimal fashion. You will also need to implement a suitable risk management strategy.
Studies have shown that in many cases, automated trading will work best within a tight span where the robot is programmed to place a sell order (take profit /TP) as soon as a profit of just a few pipsis available. A profit of just a few pips is enough to make quite a lot of money if the robot makes numerous transactions. Traders with sufficient resources can also make a lot of money from a few pips by risking large quantities of money on each trade. For the average hobby trader, doing many small trades is typically the most feasible choice.
It can be difficult for trading robots, especially the more rudimentary ones, to handle sudden, large price changes on the forex market. This can for instance happen when human traders are reacting to news events. It is not easy to build a robot that will handle complex situations well.
Be watchful when buying or renting an fx robot
As mentioned above, it is possible to buy forex robots from developers in case you do not want to build your own. If you decide to go this route, it is important to be watchful, because there are some less reputable actors out there trying to con traders.
Sometimes, they are simply delivering a poor-quality product, which can end up costing you money in the form of many lost trades. In other cases, they are more nefarious and are offering forex robots as a part of more complex scam, e.g. t o gain control over your trading account.
Here are few examples of points to keep in mind when buying a forex robot:
- If you know nothing about how forex robots work, it is of course tempting to buy a ready-made one. However, your lack of understanding will also make it more difficult for you to properly evaluate forex robots and their providers. We therefore recommend that you learn at least the basics about forex robots – including their strengths, weak spots and limitations. That way, it will be easier for you to spot fraudsters and stay clear of the type of provider who promises risk free trading and quick, guaranteed enormous profits.
- Be vigilant against those who try to woo you with a bunch of technical jargon and do not provide any information of substance.
- Your money is always at risk when you risk it on a trade. A forex robot provider that promises risk free trades is too good to be true. Do not risk more than you can afford to lose. Have a good risk management strategy in place and stick to it.
- Do not give anyone log-in credentials to your trading account.
- Do not give anyone log-in credentials to your trading account because you are experiencing technical issues with a trading robot and the robot provider’s support department claims they need access to fix it.
Test-run the fx robot using play-money
You can open a free Demo Account with a broker and use the free play-money to test run the forex robot. This can help you spot strengths and weak spots, and things that need tweaking.
Past performance is never a guarantee for future performance, but it can be an indicator.
Run your own simulations. Do not rely on trading data published by a forex robot provider. Even if it is true, the provider can still have cherry-picket the results.