The forex market can be a daunting financial market to trade in, for both beginners and even more seasoned traders. This can be due to the fact that this market is the largest financial market in the world. So, the use of automated assistance in trading, otherwise called trading robots, can be exactly what you need to boost your forex trading.
Of course, as we mentioned earlier, the foreign exchange market has the highest monetary volume of trades in the world of financial markets. As a result, it can be difficult for people to start trading in this market or for traders to make enough profits.
Regardless of your position in the forex market, forex trading robots can help you manage risk and establish a stream of profits through successful trades.
What Are Forex Trading Robots?
When it comes to the overall approach to trading we have the two types of manual and automated trading. In manual trading, the trader will make all the decisions on his own. This means you have to actually sit behind the computer to have access to the market and execute trades one by one.
But in automated trading, as the name suggests, the process of trading is carried out partially or fully with the help of an automatic system.
Although there are many different types of automated trading systems that function in different ways and in different markets, such systems are usually referred to as trading robots or bots.
As we said, these automated trading systems provide various levels of automation for traders – from providing simple signals for the trader to take action all the way to taking over the trading account entirely and doing all the work.
In either case, a trading bot is simply an algorithm that has been written especially for the task of trading in a specific market with the variables that are defined for it. It is for this reason that automated trading is sometimes also referred to as algorithmic trading.
Forex Trading Bots: A Double Edged Sword
Everything sounds good on paper, doesn’t it? Well, the same can also be said for automated trading or these so-called trading robots.
On the face of it, it sounds like they can relieve you of all the headache of trading and making those difficult decisions while bringing you profits on a steady basis.
But that is not true. Just like everything else, automated trading bots in the forex market come with both light and dark sides. Though there are clear advantages in using trading robots, there might also be certain downsides.
This is especially true if your choice of trading robot in forex is not as well as it should be. So in the next sections we are going to take a look at the pros and cons of using these systems in forex trading.
Pros of Using Forex Bots
- More efficient trading: perhaps one of the biggest advantages of using automated trading systems in the forex market is the higher degree of efficiency. If as a human you only rely on your judgment and decision making process, there are so many things that can possibly go wrong. Very simply, you can get tired and lose your usual sharp edge in trading and that is when your trades will suffer. But with the help of a trading bot you can rest assured that the computer will keep the same level of efficiency regardless of how long you run the trading process – of course, robots don’t sleep!
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- Quicker trading process: a special side of the higher efficiency in trading bots can be seen in the faster process of trading that they provide. They can do multiple tasks at the same time. They can monitor the market, use many tools and indicators to analyze the data and execute trades simultaneously. Actions that cannot be carried out by human traders at the same time.
- Removing emotions from trading: another downside of human trading are human emotions. Various emotions, whether positive or negative in nature, can negatively affect your trades. If you are tired, angry, afraid, or worried you can miss opportunities. At the same time if you are too excited you can get greedy and keep trading when you should stop. This is also when you sustain losses. Regardless of the emotion, being emotional is never a good thing in trading. This is why they say you should be fully disciplined and harness your emotions while trading. Of course this is nearly impossible for the majority of people.
- Always trading: one of the prominent peculiarities of the forex market is that due to its decentralized nature, the market is available 24 hours a day for 5 days a week. Of course you cannot monitor the market and keep trading for all that time. But a trading robot can trade indefinitely, as long as there is electricity and internet connection.
Cons of Forex Trading Robots
- Bots might be difficult to set up: one aspect of forex trading robots that can cause difficulty for traders is setting up the bot itself. It can be a little technically challenging depending on the bot. This might be one of the reasons why certain traders might stay away from such bots.
- Driven only by variables: a huge disadvantage of most automated trading systems is that they have been designed based on some certain variables, which makes up the algorithm as a whole. Since the trading process takes place based on an algorithm, it can also be limited to the algorithm itself. Therefore, trading bots might lack flexibility under different market conditions.
- Machines are not 100% safe against failure: this can be another con of automated trading. Failures are possible in various manners. There could be a power outage that cuts your connection to the market altogether. Also, your internet connection can fluctuate, causing similar issues.
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Forex trading robots are algorithms that have been designed and developed specifically for the task of providing help to the trader in the process of trading or taking over the process of trading altogether. While they have some obvious advantages, such as relieving the trader from the task of trading or providing more accurate analysis for trades around the clock, there are some disadvantages also associated with them. But the disadvantages of the trading bots are more related to the specific bot itself than to the idea of algorithmic or automated trading.
So if you want to see the good side of this type of trading and enjoy the benefits of a trading bot, choose your bot wisely. For instance, the expert advisor – which is an algorithm developed specifically for the MetaTrader trading platform – XauBot is one such bot that provides trading with steady profits on a monthly basis by trading gold and the US dollar (XAU/USD) in the forex market. There is a transparent and verifiable process through which you can test and confirm that validity and efficiency of the bot.
All in all, forex trading robots can be a good way for you to give you more freedom so you can expand your portfolio by being able to allocate more time to other markets and assets while having a bot executing trades for you.