Find out whether you could profit from using a bot.
Investing in foreign exchange has become increasingly popular and this is also resulting in an increasing number of investors considering using foreign exchange robots, or ‘bots’ for short. Not all bots work well and if you use around four to five bots set on recommended settings, only one or two might yield profitable results.
Disclaimer: Trading in financial instruments carries various risks, and you can lose more than your capital. This article may contain general advice. You should always seek professional advice when deciding if a product is right for you.
What is a foreign exchange bot?
Foreign exchange bots are computer programs that help indicate if you should buy or sell currency pairs at any given time. One of the main advantages of using forex robots is that they’re not associated with the psychological factor that can affect human judgment.
You can find a number of forex bots over the Internet, but you should take into account that there is no foolproof system that can guarantee long term returns.
Are foreign exchange bot even legal in Australia?
At the time of writing, foreign exchange bot are legal in Australia. However, ASIC has criticised the RBA over foreign exchange anomalies, blaming the cause on bots.
Do these robots actually work?
A foreign exchange robot works in entering trade orders by replacing a human trader, and relies on trading strategy as implemented by the program. The creators of such programs set in place a range of mathematical rules, which the robot then applies to generate returns. The functioning of any such program, as a result, depends largely on its creator.
The commands that bots execute depend on their technical analysis tools, but good programmers make use of back testing to get optimal results. While programmers can automate this process, it would require making certain tweaks so as to improve performance in areas like placing stop-loss orders and maximum drawdowns.
What are the types of foreign exchange bots?
The use of foreign exchange robots for automated trading can vary depending on specific requirements. If you’re considering using a computer program to help simplify your trading woes, details of your options are as follows:
- Fully automated. This kind of trading is in line with black-box or algorithmic trading. Here, a computer based algorithm works on facets like price, quantity and timing, and then initiates the trade automatically. As a user, you can make some changes to the program’s technical parameters, but the program controls all other aspects.
- Signal-based. There is an absence of completely automation in this process. A computer program draws a user’s attention to potential trades or signals, and the user then manually executes the trades using the services of a broker. So, while the program generates leads, the implementation is up to human traders.
Is it possible to compare bots?
If you’re considering investing in a foreign exchange robot or more, consider the following.
- Profitability. An easy way to compare foreign exchange robots is to take a look at their profitability over a period of time. This would involve comparing month to month as well as year to year results. Some comparison charts give you detailed break up of aspects like leverage, drawdown and total pips.
- Number of trading sessions. Foreign exchange bots come with different number of trading sessions or strategies, with each offering its own level of profitability and reliability. The use of such technology gets users to do away with carrying out extensive calculations or spending time in selecting suitable settings. You get to decide desirable profit levels, but bear in mind that higher the desired profit level, higher the risk.
- Currency pairing. Make sure you find out if the foreign exchange robot you plan to get works with desired currency pairs. This is simply because not all such robots support all currency pairs, and you should ideally look for ones that pair the Australian dollar with maximum currencies.
What are the pros and cons of using foreign exchange bots?
- More trades. A foreign exchange robot can generate considerably more trades when compared to a human trader. It can also work in replicating its actions across multiple time frames and markets.
- The psychological factor. Human traders can let their emotions rule their decision making process, but with a foreign exchange robot there is no psychological factor to worry about.
- Scams. While there are some foreign exchange bots that deliver positive results, there is no dearth of promoters who market bots for no other reason than to make money. Before you choose any one, make sure you check its credibility.
- Risk perception. While human traders can perceive risk in turbulent times, risk perception with forex robots does not work in the same manner.
Beware: there are risks using bots!
Know that there is no foreign exchange robot that can guarantee you returns, so don’t fall for tall claims without exercising due diligence. Remember that while the temptation of using foreign exchange robots might be strong, their delivery has a lot to do with understanding the largely random nature of financial markets the world over.