If you’ve done so much Forex trading over time, you probably know how exhausting the process can be, especially if things don’t go as planned. It is a dream of many traders to get an intelligent partner untainted by emotions, logical, who always aim for profitable trades, and executes them almost instantly. If you’re one of them searching for all of this, don’t worry – you can get it all with an automated Forex trading system.
Automated Forex Trading System – An Introduction
What is an automated forex trading system? How does it benefit traders? Why do many forex traders look for the best automated trading system? Forex novices are often faced with these questions when they hear about automated trading systems.
Well, in order to answer this question, first you need to understand the difference between manual trading and automated forex trading.
- Manual trading: This is when you open and close trades on your own using the trading platform every time you make a trade.
- Automatic trading: This is when you employ software or algorithmic programs to analyze the market and place a trade in accordance with predefined parameters, instead of doing it manually by yourself.
Automated trading systems are suitable for trading in many other markets besides Forex, for example, stocks, commodities, cryptocurrencies, stocks, and other markets as well. Yet, it has significantly affected the forex trading environment on a variety of levels. To be more specific,
About 70% of daily transactions in the US are executed with the assistance of automated Forex trading programs.
In a nutshell, the growth of financial technology enables the transformation of what was once a transaction-intensive, back-office operation into a fully automated one. Automated trading programs analyze the market, open a trade, and streamline your trading process, allowing you to sit back and relax while the computer handles everything for you.
What is automated Forex trading?
Automated Forex trading is a system that uses advanced algorithms and software applications to analyze the behavior of the currency markets, place trades on behalf of the user, and make decisions based on market conditions.
How does an automated Forex trading system work?
An automated Forex trading system uses sophisticated algorithms to monitor and analyze market trends and signals. It then takes this information to generate buy or sell signals which are then executed automatically.
What are the benefits of using an automated Forex trading system?
Automated Forex trading systems offer many benefits including speed, accuracy, time saving, diversification and free up time for traders to focus on other tasks. They also provide minimal risk as losses can be minimized due to predetermined stop-loss levels.
Why do you need an Automated Forex Trading Strategy?
As a matter of fact, the answer to this question lies within itself. The word “automated” trading strategy can save you many sleepless nights and long hours of labor. Additionally, this system executes transactions on your behalf across a variety of currency pairs. Although you can perform all of these activities by yourself manually, choosing an automated strategy comes with an algorithmic combination that finds the best currency pairs by itself upon doing its own research.
“Automated trading allows you to walk away and watch the strategies work, eliminating some of the emotional lead we have seen in the past.”
Choosing automated forex trading also eliminates the emotional aspect of trading, allowing the trader to take a break while the system trades on their behalf. It is possible to monitor Forex markets on any day or at any time using algorithms. A dedicated program can make tens of thousands of trades in a second and perform calculations faster than a human. Furthermore, they can execute your transactions simultaneously while searching for new opportunities for you.
What is the Automated Forex Trading Strategies?
Automated algorithmic trading has completely revolutionized the trading landscape, and most traders use this practice to some extent without even realizing it. Most trading platforms offer a variety of order types that can be pre-set and triggered automatically when conditions meet, which is an automated trading method. The ability to place Stop-loss and Take-profit orders almost entirely automatically without involving any trader is another example.
Here are some examples of forex automated trading strategies that are being used in the world of forex trading.
- Statistical trading – A statistical trading strategy is an algorithmic approach used to analyze historical data to discover opportunities for trading. The identification of profitable trading opportunities can be achieved by comparing historical data with current market conditions.
- Auto-Hedging – As the name implies, this strategy implements forex hedging automatically. The idea behind hedge trading is that after one trade is placed, another one is executed to cover the first trade. A trader’s main goal is to reduce their exposure to risk. By balancing the exposure across different currencies, a portfolio could be less exposed to risk.
- Scalping strategy – The forex scalping strategy entails taking advantage of small price changes that may occur within a few seconds. As this type of trading involves opening a large number of trades each day, automated forex trading might be particularly appropriate, as manual trading would result in a slower execution time.
- Trend trading strategy – The trend trading strategy involves trading based on the current price trend, e.g., buying when there is an uptrend and selling when there is a downtrend.
- Momentum trading – Momentum trading is also a popular short-term trading strategy in forex. For trend traders, buying low and selling high is the general rule, while momentum traders buy high and sell higher.
- News trading – When central banks meet and major news releases occur, volatility increases significantly and prices fluctuate rapidly. Since most institutional traders use algorithms for such events, there is very little manual trading during this period.
- Direct market access – This refers to the optimal speeds and lower prices at which algorithmic traders can access and connect to multiple trading platforms. It is typically used by buy-side firms. DMA allows buy-side firms to trade without relying on market makers and broker-dealers.
Automated forex trading involves high-frequency trading, characterized by extremely fast order execution rates. With high-frequency trading, traders can take advantage of incremental changes in prices within milliseconds. Therefore, traders are able to act more quickly and precisely than they could when using manual trading methods.
Now you can learn all these types of effective trading strategies for free with the AximTrade online Forex course coupled with real-life trading examples.
Pros & Cons of Automated Forex Trading Systems
While automated trading brings numerous advancements to the trading world, there is no guarantee that every trade will result in significant profits. A fast-moving market like Forex can present both advantages and disadvantages for automated traders. Before implementing automated trading into your strategy, make sure you weigh both its pros and cons. Let’s break them down one by one.
Advantages of Automated Forex Trading:
There is a long list of advantages to having an automated/algorithmic trading system coupled with your forex strategy. A few of them are as follows:
- Emotional detachment — A major advantage of automated forex trading is that it removes emotional and psychological influences. By using an automated Forex trading system, you will be able to make consistent and unemotional trading decisions based on parameters you have previously defined or those installed by default.
- Effort-Saving — Algorithmic trading usually requires very little individual effort on the part of the trader. Computerized methods automatically place buy and sell orders based on different technical symptoms. It also allows the trader to personalize the trading strategy for better results.
- Faster Execution — Algorithmic trading has significantly reduced Forex transaction times over the last few years by automating certain processes. The automation of these processes, such as the execution of trade orders, not only produces efficiency but also lowers their costs. It has been proven that the automatic execution of trade orders and transactions is more efficient than manual execution.
- Proficient Trade Analysis — Automated forex trading software tracks multiple market timeframes and analyzes data charts to determine accurate trends in currency prices. With the use of machine learning technology in the Forex market, it is possible to forecast trading signals such as spread discrepancies, price trends, and market news so that it can profit from currency pair trades.
- Quicker Transactions — Fintech enhancements are providing a potential solution to the growing consumer demand for transparency and efficiency in Forex transactions, and it is completely transforming the sector. Forex transactions, including deposits and withdrawals, were made easier and faster by automated technology. A variety of payment methods were also made possible by these technologies.
- Evolving Workflows — The advancement of trading technologies also reduces the burden of data retrieval activities. With the advances in artificial intelligence (AI), machine learning (ML), and natural language processing (NLP), forex trading workflows can be simplified, allowing for quicker, more accurate, and more accurate decision-making.
- A better researcher — Automated forex trading gathers more historical data than human traders. This means that for a strategy that covers several currency pairs or markets, you can probably monitor only a few of them at once. On the other hand, automated trading can be set up to monitor as many charts as you like, and they will not miss any signals or trends.
- Diversifying Trading — Automated forex trading allows the user to trade with multiple accounts and apply various strategies at the same time. As a result, the risk can be spread across a variety of instruments while hedges against losing positions are created. Humans would have difficulty accomplishing what a computer can do efficiently and in milliseconds. Besides scanning for trading opportunities across a range of markets, the computer can generate orders and monitor trades as well.
Disadvantages of Automated Forex Trading
Despite the fact that automated forex trading is touted as a fantastic investment tool, there are some downsides that traders should be aware of. Here are a few of them:
- Nothing is certain — No matter how knowledgeable you are in Forex trading; mistakes do happen regardless of how experienced you are. Automated trading is no different. There is no Forex AI trading software that can guarantee a 100% win rate. Also, keep in mind that success in the past does not guarantee success going forward. Nevertheless, automated forex trading can provide a competitive edge only if used correctly.
- Over-Optimizing — There is a misconception that automating your system will result in more winning streaks. Since they hold this belief, they tend to optimize their trading strategies too much in anticipation of good returns on the currency market. The truth is, over-optimizing a strategy for the live market may lead to unreliable results in the future.
- Monitoring is necessary — Some people assume that automating their trading is as simple as turning on the computer and letting the software handle everything. The thinking is not entirely wrong, but the system is not infallible and requires regular monitoring due to malfunctions, lost internet, and other technical failures. Software malfunctions could result in duplicate or lost orders, which makes monitoring necessary.
There’s nothing perfect in this world, and automated Forex trading is no exception even though it’s an extremely popular and interesting tool. The best thing to do is to use both types of trading methods to your advantage. It is better to automate the systems that are easy to implement and too difficult to trade manually, while simple strategies that involve chart patterns and fundamental analysis are better off being performed manually.
Which is the best platform for Automated Forex Trading?
Despite the availability of a variety of trading platforms that facilitate automated Forex trading processes, MetaTrader is the most prevalent of all. With MetaTrader 4 and MetaTrader 5, traders are able to trade multiple markets simultaneously from a single platform, along with advanced charting capabilities.
While algorithmic trading offers many benefits, it is important to ensure that your trading platform is compatible with it. Listed below are three important factors that make MetaTrader the best platform for automated Forex trading:
- Metatrader is easy to use: It is very easy to open and close trades with MetaTrader even for a beginner.
- Metatrader is user-friendly: You can use MetaTrader to execute any trading strategy you want.
- Metatrader is customizable and professional: MetaTrader can be configured to perform both automatic and manual trades, making it perfect for a wide variety of trading needs.
The AximTrade MT4 platform is fully compatible with most PC and mobile devices, so gives you the power to access the market wherever and whenever you want, and keep up-to-date with current market activity from the convenience of your phone or laptop.
How are the trading robots helping traders?
Robots are increasingly becoming a popular way of trading in the forex markets. They can be programmed to execute trades automatically and in line with pre-defined parameters such as financial market conditions, technical indicators, risk management, and entry and exit points. Robots provide an efficient and effective alternative to manual trading that helps reduce trading costs while allowing traders to focus on other areas of their business. Using robots can also help traders take advantage of opportunities in volatile markets which would otherwise have been missed.
Robots offer a variety of functions to assist with automated forex trading. These functions include a set of basic tasks:
- Market and Technical Analysis – Robots can be programmed to conduct technical and market analysis on the forex market for better decision-making.
- Entry and Exit Point Identification – Robots are designed to identify entry and exit points, helping traders set profit targets and stop losses more accurately.
- Automated Order Execution – Robots execute trades based on user-defined criteria without any manual input, helping reduce human errors.
- Risk Management – Robots help manage risks better by performing backtesting, optimization, and portfolio diversification to mitigate potential losses.
Automated Forex Trading – FAQs
Is Automated Forex Trading Profitable?
Making good profits in automated trading ultimately comes down to your trading skills, your trading knowledge, and the broker you trade with. This is why trading with the best broker is important, since they employ the best analysts, collect a great deal of data, and have access to industry-leading technical indicators built into their trading platforms. Fortunately, retail traders can now build their own trading programs, or purchase them at the MetaTrader Marketplace, for instance.
Is Automated Trading legal?
There are no legal restrictions on automated trading in any market, including forex markets, stock markets, commodities markets, and cryptocurrency markets. No country has passed any laws or regulations prohibiting automated trading to date (that we’re aware of). Nevertheless, the decision to allow automated trading in an account rest with the broker. Some companies allow clients to trade automatically, while others forbid it. At AximTrade, you are free to use automated trading with MT4 and Copy trading services to maximize profits.
Is Algorithmic Trading safe?
If you have a solid understanding of trading strategies, markets, and algorithms, then you shouldn’t have any difficulty trading with algorithms or automated trading systems. The benefit of algorithmic trading is that it helps conduct emotion-free trading since it prevents buying and selling at the wrong prices, which would otherwise result from fear and greed.
how to select an automated forex system?
Research the different types of systems available and evaluate their features, advantages, and disadvantages before making a decision. You should look at factors such as the track record of the system, the cost of using it, its accuracy and precision in executing trades, the availability of customer support, and how easy it is to use. A thorough evaluation process can help you identify a trading system that meets your requirements and provides maximum returns.
Follow the professional tips and avoid risks
Automated forex trading involves a certain degree of risk, as there is no guarantee that the robot will make accurate decisions at all times. Factors such as market volatility, economic news releases, and political events can lead to sudden changes in the markets which robots may not be able to detect or anticipate. Moreover, robots may not take into account other important factors such as psychology and emotions when making decisions.
As a result, traders should always ensure that robots are set up properly and monitored regularly to minimize potential losses. Potential risks associated with automated forex trading include:
- Market Volatility – Sudden changes in the markets can lead to losses.
- Emotional/Psychological Factors – Robots cannot factor in emotions and psychological factors when making decisions.
- Poor Trading Strategy – Incorrectly configured robots may follow bad strategies which can result in losses.
- Inaccurate Data – Without reliable data, robots may make inaccurate trades.
- Security Issues – Malicious actors could gain access to robots and manipulate them for their own benefit.
Copy Trading – Automate your Forex trades the easy way!
The international forex market can be a complicated place to trade. First-time investors may find it challenging to invest funds in markets and assets they’re unfamiliar with, like Forex. As automated trading or algorithmic trading became popular in 2005, numerous new trading methods appeared, the most prominent of which is copy trading. In 2010, many financial brokers began offering copy trading in the forex market. In 2022, copy trading is the hottest trend, and AximTrade offers beginners numerous opportunities to copy experienced traders.