Automated Forex trading: pros and cons
Exchange and currency trading are processes that require their participants to be able to react quickly to market changes. After all, too much can often depend on a delay of a few minutes – up to the loss of a solid part of the deposit. But are traders ready to spend a lot of time to control the changes taking place almost every second? For novice players, this total control is often too complicated and automatic trading systems are used. But here is the question: automatic trading – should it be replaced by “manual” methods of process management?
Actually, any extremes are bad for Forex business. Complete rejection of automatic systems in trading or, on the contrary, lack of desire to trade independently is equally inconvenient. Simply because the ideal trading system in the foreign exchange market is always multi-component and built up by obtaining information from multiple sources.
Trading processes are based on the analysis of market data for different periods of time. And with “manual” trading, collecting information and organizing it takes a lot of time. Process automation is not just about simplifying these processes – it makes analysis of the information available at any time.
Automated trading systems
Automated trading systems or “Forex robots” are software that allows you to trade without or with partial participation of a trader. In particular, the program can open and close trading positions based on the set trading system settings, set loss and profit limits.
Expert Advisors can be distributed for a fee and free of charge by their developers – the creators of programs based on the trading experience of a particular trader / method of exchange trading.
Advantages and disadvantages of automated trading
One of the obvious advantages of trade automation is that it is possible to mention
1) Minimization of the risks associated with the easy mistakes, excessive emotionality, trader’s miscalculations. The robot reacts to changes in the market instantly. He does not panic, does not try to play “everything” in a knowingly dangerous situation, does not seek to catch up and overtake the market. It always acts in accordance with its basic principles of trading. And that’s probably the most important thing.
2) Instant conclusion of transactions. The robot does not need much time to see the upcoming changes in the trading situation. In his work he is based on accurate calculation and analysis of data, and not on intuition or dozens of opposite predictions. In fact, automatic trading is reminiscent of working with pending orders and allows you to have time to conclude a deal with a minimum price difference, because from the moment of making a decision to the beginning of the action are a matter of seconds.
3) Working online. Automated trading helps to solve the main problem of a trader – the impossibility of providing excellent physical and psychological condition 24 hours a day. The robot doesn’t have to stop for sleep, food and other things. He always controls the market. Always ready to make a good deal. And it is able to react to the changes that are taking place when they are most relevant.
4) Individuality of settings in trading is another indisputable advantage of robots. They allow you to build trading processes based on the trader’s personal preferences and the chosen trading strategy.
5) High speed of information processing. Automation of market analysis allows the trading robot to get information about the most promising directions of market movement with minimal delay. It will take the trader tens of minutes and millions of missed opportunities to make the same calculations manually.
There are also disadvantages to automated trading. In particular:
1) Cost. One of the most effective trade advisors is implemented by their creators on a reimbursable basis. And the price of the question can reach several tens, hundreds and even thousands of dollars. However, no one can guarantee breakeven trading, even on a very efficient system. And the results will still depend, in one way or another, on changes in the trading situation.
2) No one guarantees you against malfunctions of your trading equipment. In this case, the robot can simply drain the deposit without setting any limits or making knowingly unprofitable deals.
3) The hardware for the 24-hour operation of the vending machine must be sufficiently powerful and protected from power outages. In some cases, it may be necessary to transfer the vending machine to a dedicated virtual server to ensure that the software runs smoothly online.
4) The robot is ideal for trading in a “quiet” market. Any unexpected changes in the trading situation may lead to a drain of the deposit. And they are not uncommon, especially due to economic fluctuations. But such factors as political changes, local military conflicts can also influence the change in the trade situation. And the automatic trading system will simply not be able to take into account all these factors and will continue to trade according to the usual scheme.
5) Technical analysis is the basis for trading robots. But in real trading, in addition to it, methods of fundamental analytics are used. And trading strategies are often based on working with incoming news bulletins. And all these factors will not be taken into account when trading in automatic mode.
6) Automated trading systems are not able to recognize false market signals. By default, they perceive them as reliable and conclude deals based on knowingly incorrect data. It is better to keep silent about the results of such trading activities.
It is important to take into account that there are not only fully automated trading systems, but also services that allow beginner traders to trade “after” more successful colleagues. That is, you initially acquire the right to copy the actions of another trader, making a profit or loss. But this way of trading is unlikely to teach you to better understand the mechanisms of market analysis. And they are the basis of trading as such. And the answer to the question of whether to use automatic trading on Forex lies in the same plane as the questions of choosing the currency market as a platform for investment.
Do you think you’ll benefit from such an experience? Then don’t hesitate and choose your own strategy. Are you afraid to blindly trust your funds to a soulless machine? Then learn the subtleties of the process from your own real experience. And don’t be afraid of losses – the risks are about equal here, and as you gain experience and practical knowledge, they will decrease, making Forex an ideal investment tool for placing your own capital.