Technology is leaping each day, offering new opportunities for trading and investing to market players. The type of trading is also referred to as algorithmic trading, system trading, mechanical trading systems or automated trading. It gives an opportunity to people to decide the exit and entry points of trades. Once programmed or established, the command gets automatically executed when the time arrives via a device. Thus, it does not require the constant vigilance of a trader.Â
Automated forex trading is represented by forex robots. These are special programs for trading fiat currencies. Using mathematical algorithms, they generate trading signals using technical indicators.Â
Thus, having a piece of robot initiating all trades for you without moving a finger is tempting. All you need is to pick the profit and invest it elsewhere.Â
But the real question arises, is automated forex trading actually beneficial or it requires human intervention or supervision regularly?
How does forex bots work in trading?
Experts Advisors (EA) are a type of forex bots. They are found with trading platforms like MetaTrader4 (MT4). EA’s utilise several custom scripts and endless types of technical indicators for deriving trading signals. Interestingly, investors have the freedom to program EAs as per their needs through the trading platform. MetaQuotes Language v. 4 (MQL) is the programming language used in establishing robots for trading use.Â
It is noticeable that top forex trading bots have the potential to map endless trading charts. Thus, they help in locating trading opportunities for investors. Once the chance for investment is located, the message is sent to the trader.Â
However, as per the program or set parameters, these bots can even take positions in the market and execute the forex trades.Â
The trade exit and entry rules may depend on conditions like moving average crossover. Moreover, there can be complicated strategies or plannings that may need extensive research and understanding of the programming language associated with the trading platform.Â
These automated trading systems are directly linked to the access broker through specific software. Rules or commands can be given through a certain language conducive to the proprietary system.Â
Pros of Automated forex trading systemsÂ
Automated forex trading assists traders by taking the load of tracking all markets of the world before concluding the strategy. Here, you are free to offer commands and see how the trades go without looking at the market for every specific detail. Also, the approach of bots is more logical.Â
Disciplined approachÂ
Trading in the forex market requires attention and utmost discipline following the volatility it offers to its traders. The price of an asset changes several times in a second. So, a trader needs to be vigilant. But when robots are in charge, discipline is on point. They do not waste a second for executing bids as per the programming coded in them. A trader needs to mention the time, and the date and the execution takes place, buy or sell.Â
It is one of the trading plans that is being used by traders as bots do not require to go on breaks. They can work relentlessly for users and keep on executing orders as per commands. It is not possible for a human forex trader.Â
A human can procrastinate to execute the plan. However, bots would act according to the plan irrespective of anything. So, it saves time for traders or investors. There are no emotions attached here, so what goes outside of the world does not affect the trading.Â
Minimal emotionsÂ
Forex trading bots do not work on emotions, but codes. So, when the market changes its trends, people may get triggered with fear or anxiety and might make a wrong decision. However, automated trading systems won’t do that. They’ll take a practical approach and initiate the trade. Bots allow investors to stick to the plan irrespective of the market’s movement. Thus, they negate the unnecessary emotions that may lead to losses.Â
As per the set rules, once you enter the market using bots, stop loss, and profit targets come into play. In fast-paced markets, the instantaneous approach helps in booking profits and averting losses. So, that’s a smart trade in the forex market.Â
Use in backtestingÂ
A trader may take time in figuring out the historical data before deciding to invest in a forex asset. However, with computer programming or an automated system, the entries of data can be fetched immediately and strategies can be created quickly for the forex market. The computer brings all information that is required by the user for better planning and execution of trades.Â
Moreover, traders can take a set of data and put them into practice on a demo account before investing in a live market. So, it saves money. Careful backtesting aids in creating a fine strategy with pinpoint accuracy. Thus, the chances of emergingÂ
Improves trading speed
If your execution is quick while trading in the forex market, the profits get magnified. Bots do not miss a second while executing the programming command. Thus, selling and buying of forex take place instantly in the market. Computers respond immediately to market orders. A few seconds saved in entries and exits of markets make a huge difference n profit,Â
It lands users to profit targets with an application of stop-loss. With the help of bots, it is moral boosting to act swiftly against the market movements. However, that’s impossible with human intervention.Â
Diversify portfolioÂ
With the help of forex trading bots or automated systems, traders can operate multiple accounts and track different markets and currency pairs. Thus, multiple strategies can be applied. Trading opportunities are scanned by computer bots for users. So, it helps in diversifying your portfolio, minimising the risk.Â
Cons of automated trading system in forexÂ
No matter how helpful technology is for traders, there are some pertinent loopholes that are difficult to plug. Automated trading systems or forex bots also have some that disappoint or demoralise traders or investors slightly.Â
Bots require monitoringÂ
After all, humans created machines and programming. Thus, trading bots are susceptible to failure. So, traders cannot rely on technology all time and rest for the entire day. There may be connectivity problems that may persist, hard disk crash, power loss, hacking or system quirks. So, it is imperative to monitor the know-how of your system for the smooth functioning of your trades, otherwise, you may end up making losses.Â
Anomalies can trigger errant orders, getting you into trouble and unforeseen errors.Â
Mechanical failuresÂ
Automated trading in forex comes with mechanical failures as well. There may be some in your system that may initiate that. Thus, automated trading systems are not as simple as one may think they are. They also require regular interventions and services. Thus, it is not infallible in any case. A trade order may reside on a computer device and not a server necessarily, depending on the order type. Thus, if the internet connection goes for a toss, a trader would instead end up making losses rather than profits.Â
Conclusion:
Automated trading systems come with both advantages and disadvantages. People need to be careful while investing in the forex market. Some of the pros include:-Â
- Multiple Account handling
- Minimises emotional trading
- It allows backtesting
Some consÂ
- Mechanical failures may occur anytime
- Monitoring is imperative
- Requires expertise in programming to resolve issues