Jenna Arnold has always been fascinated by the stock market and the world of trading. Having dabbled as a part-time trader while at university studying English Language, she leveraged her insights into this world into a full-time career as a writer specialising in trading and broker reviews. Jenna joined TradersBest.com last year and now heads all of our trading content, working remotely from her home in Massachusetts.
Forex trading is more popular than ever before and the abundance of online trading platforms means it is accessible to anyone with a web-connected device.
Novice traders are often put off by the seemingly endless reams of information regarding currency trading, but the good news is that tools are on hand to make things easier. Forex trading bots, for example, can identify patterns in the charts – and even trade automatically.
Read on to find out about the benefits of automated trading algorithms.
If you’ve already tried your hand at forex trading then you’ll no doubt have seen how complex trading platforms can appear. Keeping track of price data to try and identify patterns and potential points of entry or exit can be hugely time-consuming – and that’s where forex bots come in.
Forex bots can process information in a much more time-efficient way than a human trader. AtoZ Markets’s trading algorithms, for example, can quickly gather price data, identify suitable entry and exit points and open positions far faster than a trader could manage alone – and speed can be everything when it comes to forex trading.
However, traders should be aware that forex bots aren’t going to replace them having to know their stuff when it comes to the markets. Instead, bots should be seen as a tool to help traders optimise their approach and build a more consistent trading strategy.
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How do forex trading bots work
Traders interested in using trading bots are encouraged to research the different types available. Each one will have differing features – some simply generate signals, whilst others offer a complete portfolio management system. Different forex trading bots will also offer differing levels of customisation – although these are often aimed at more advanced traders.
Typically, forex trading bots will include the following functions:
Market Data Analysis
This involves a fundamental analysis of existing price data – something which would take a human trader hours on end, but a forex trading bot can accomplish momentarily. The data is then processed to produce trading signals, such as those provided by AtoZ Markets’s trading algorithms.
Risk Analysis
Using data gathered from in-depth market analysis, forex trading bots can then identify breakout points, spot trends and attempt to predict boom/bust cycles to identify how much risk investing in a particular currency pair poses. Once again, this information can then be used to decide when to buy or sell.
Executing Trades
Traders can use forex trading bots to generate signals that they then choose whether to act on, or they can use bots to actually execute trades on their behalf. This is particularly useful for those who are looking to make high volume trades but are not able to dedicate their full attention to the markets day in, day out. A trading bot can identify suitable points at which to open a position.
Are forex bots effective?
When people read about forex trading bots, the first question that often comes to mind is how effective they are. Using automated trading software can give a huge boost to the average trader, identifying suitable investments and generating signals to inform a trading strategy. However, they aren’t infallible.
Forex bots are not right all the time – despite using sophisticated algorithms and scanning through reams of data, bot signals are still ultimately educated guesswork. However, at AtoZ Markets, for example, customers have been known to see success rates of 70% and certainly benefit from the speed at which forex trading bots can produce signals.
Don’t forget, the effectiveness of forex trading bots always depends on how they are used, as well as what happens in the market. They are programmed according to pre-existing values and, as we all know, the forex market can be a very unpredictable place.
Choosing a forex trading bot
There are plenty of forex trading bots to choose from so it’s a good idea to consider a few important features when coming up with a shortlist. Different traders might priorities different factors, but what follows are some of the key features to be on the lookout for.
Fees
Most forex trading bots will require you to pay a fee of some sort. This might be a one off payment to download the relevant software, but more often than not it will be a subscription fee to use a particular platform. Make sure you are aware of the fees involved before you start using a bot as part of your strategy.
Community
Forex trading bots require specialist software and it can be hard to tell who the most reliable providers are. It is therefore a good idea to check whether a platform has a community and whether that community has provided feedback on their experience with the trading algorithms.
Demo account
There can be no better way of testing out forex trading bots than by using a demo account. That’s why we often recommend platforms like AtoZ Markets, which have welcome offers that entitle new members to a free 14-day trial, so they can see how the algorithm system works and test the quality of a platforms signals.
Results
Results are never guaranteed when it comes to trading, but forex trading bots need to offer something worthwhile. At AtoZ Markets, for example, users have reported great experiences with the algorithm-based approach to trading and the win success rate of the platform’s signals has been known to exceed 70%.
Usability
Whether you’re an experienced trader or are relatively new to the markets, forex trading bots are there to improve your strategy and as such, they need to be user friendly and easy to put to work. This means you should be on the lookout for a platform that offers an approachable user interface that you can be comfortable using regularly.
How to use forex trading bots
Once you’ve checked out some of the forex trading bots available and chosen one that appeals to you, the next step is to integrate it into your trading. There are several ways you can do this and how much or how little you make use of automation is often a matter of preference.
Forex trading bots can usually be slotted into existing trading strategies. For example, you can use forex signals generated by algorithms at AtoZ Markets to build a trend trading strategy – going long when a currency is trending up, or short when it trends down. Forex trading bots can also be used in arbitrage trading – finding price variations between markets or exchanges to make a profit.
It’s also possible to use forex trading bots to automate copy trading – using either a top-level professional or another trading bot as a model for building a trading strategy. Don’t forget, you can also use tools like stop/loss or take/profit in conjunction with forex trading bots.
Advantages and disadvantages of forex trading robots
It should be fairly obvious by this point that forex trading bots can be a powerful tool in a traders arsenal. This is why many professional traders will use several different bots to boost their efficiency. However, forex trading bots aren’t a magic formula for trading success and novice users should be aware of the pros and cons.
Amongst the most significant advantages of forex trading bots are:
A lack of emotion
Traders will often get jittery if a position goes against them – even if they expected this to happen before a turnaround. This can often lead to positions being closed too early and making a well-placed strategy all but pointless. Forex trading bots aren’t affected by emotions – they can stick to the plan at all times.
Faster trading
Another important advantage of forex trading bots is simply their speed. Bots can handle information at speeds a human trader can only dream of. They are also capable of opening and closing multiple positions simultaneously. As we know, timing is hugely important when it comes to trading and this is where a bot can prove its worth.
Bots remain disciplined
A trader’s discipline can waver for numerous reasons. They may feel dejected after a few trades don’t go their way or personal commitments may interfere with their trading schedule. Forex trading bots don’t have these concerns and can remain disciplined for the long haul.
Trade around the clock
The forex market never sleeps, but unfortunately, a human trader always needs to get some shut eye. This is not true of forex trading bots. They don’t need down time or sleep and can be working 24/7. Naturally, this opens up a lot more opportunities for traders.
Of course, traders also need to be aware of the limitations of forex trading bots:
The need to be monitored
Swing trading bots cannot be left to run without supervision. Markets change and old algorithms may become less effective over time. Traders also need to be sure that their current strategy is working and, if not, a bot may need to be repurposed to stand a chance of delivering results.
Trading bots aren’t 100% effective
This is an important point for novice traders: forex trading bots can’t do the job for you. Just as with human traders, they cannot predict what will happen and bots can make the wrong call just as professional traders can. Forex trading bots are a powerful tool, but they can’t replace the mind of an educated and focused human trader.
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Forex trading bots- Quick Facts
How do I start using forex trading bots?
If you’re looking to start using forex trading bots, then the best option is to find a platform that offers the service and open an account. Remember, it’s possible to use several bots at once so make sure you research your options thoroughly to build the best strategy.
Are forex trading bots reliable?
Forex trading bots from trusted providers are regularly tweaked and updated to ensure they work as they are intended. However, traders should never rely on them to work perfectly over the long term and it’s advisable to monitor their performance over time.
Are forex trading bots legal?
Forex trading bots are legal in many countries around the world. However, to be on the safe side it’s worth double checking the regulations in the country you plan on trading from.
Can I make money with forex trading bots?
Of course, it’s possible to make money with forex trading bots – otherwise people wouldn’t use them. However, nothing is guaranteed and you can still lose money on the markets even if you use multiple bots.
How do I choose the right forex trading bot?
There are many forex trading bots on the market and each will offer something slightly different. The best thing to do is spend some time thinking about what you expect from a trading bot, then start researching what options are available.
Can you build your own forex bot?
Many novice traders are surprised to find out that it’s actually possible to build your own forex trading bot – customising it to your exact requirements. However, the traders that do this are often working in teams that include software engineers. Building a bot requires advanced knowledge of trading strategy as well as professional proficiency with multiple programming languages.
The good news is that many trading platforms offer their own proprietary algorithms, meaning you can take advantage of all the benefits without having to learn how to code for yourself!
Conclusion
The forex markets move fast and are operating 24/7, so it stands to reason that forex trading bots present a very interesting opportunity to the ambitious trader. Whilst they cannot guarantee results, they can augment a human trader’s analytical capability as well as increase the number of trades they can handle. If you’re new to the idea of trading bots, then we recommend taking advantage of a free trial or a demo account to find out how they might give a boost to your forex trading.
Also, there are trading bots and trading signals for other markets, as, for example, for the stock market. If you are interested in trading stocks, check our beginners guide to stock signals.
Forex Trading Bot – FAQ
🤖 Do bots trade automatically?
There are numerous forex trading bots available these days and each one can offer something different – and this includes varying levels of automation. In addition, some bots can be customised according to the needs of the individual trader. You can find out more in our guide to forex trading bots.
🤔 How do forex trading bots work?
Beneath the surface, forex trading bots are pretty complex and to fully understand how they work would require familiarity with web programming languages. However, suffice to say there’s a lot they can do when it comes to trading and they can be used in numerous ways, accordion got the individual trader.
👍🏻 What are the advantages of forex trading bots?
Forex trading bots are growing in popularity and appeal to many novice traders as they can crunch a huge amount of complex data in record time. However, it’s important to remember there are pros and cons when it comes to forex trading bots so be sure to research any bots you may use before implementing them in your trading strategy.
☝🏻 Are forex trading bots a scam
If you sign up to a trading platform that offers bots and automation software then there are a number of things you should check to ensure they are legit. This includes any relevant licencing credentials, as well as any feedback and/or reviews from existing users.
💰 How much do forex trading bots cost?
Most third-party forex trading bots will come with some sort of fee, but this will vary depending on your provider. Before signing up to a platform, be sure to check its rates and compare them to other forex trading bots on the market.
