Forex Trading Robot Definition – Investopedia
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What Is a Forex Trading Robot?
A forex trading robot is a colloquial term for algorithmic trading based on a set of forex market signals that helps determine whether to buy or sell a currency pair at a given point in time. These systems are often fully automated and integrate with online forex brokers or exchange platforms.
Key Takeaways
- Forex trading robots are automated software programs used to generate trading signals in FX markets.
- Forex robots are designed to remove the psychological element of trading, which can be detrimental.
- While forex trading robots advertise the prospect of profits, it is important to remember that they are limited in their capabilities and not foolproof.
Understanding Forex Trading Robots
Forex trading robots are automated software programs that generate trading signals. Most of these robots are built with MetaTrader, using the MQL scripting language, which lets traders generate trading signals or place orders, and manage trades.
Forex (FX) robots are designed to remove trading’s psychological element, which can be detrimental.
Automated forex trading robots are available for purchase over the Internet, but traders should exercise caution when buying a trading system this way. Oftentimes, companies will spring up overnight to sell trading systems with a money-back guarantee before disappearing a few weeks later. They may cherry-pick successful trades as the most likely outcome for a trade or use curve-fitting to generate great results when backtesting a system, but these are not legitimate systems for assessing risk and opportunity.
Another criticism of forex trading robots is that they generate profits over the short term but their performance over the long term is mixed. This is primarily because they are automated to move within a certain range and follow trends. As a result, a sudden price movement can wipe out profits made in the short term.
Important
There is no such thing as a “holy grail” for trading systems, because if someone did develop a money-making system that was failproof, they would not want to share it with the general public. This is why institutional investors and hedge funds keep their black box trading programs under lock and key.
Developing Your Own Forex Trading Robot
Forex traders may want to consider developing their own automated trading systems rather than take a risk on third-party forex trading robots.
The best way to get started is to open a demo account with a forex trading broker that supports MetaTrader and then start experimenting with developing MQL scripts. After developing a system that performs well when backtesting, traders should apply the program to paper trading to test the effectiveness of the system in live environments. Unsuccessful programs can be tweaked, while successful programs can be ramped up with increasingly larger amounts of real capital.
In general, many traders try to develop automated trading systems based on their existing technical trading rules. Some of these systems are more successful than others. An example might be a trader who watches for breakouts and has a specific strategy for determining a stop-loss and take-profit (T/P) point. These rules could be easily modified to operate in an automated fashion rather than being manually executed. Traders should keep an eye on these systems to ensure that they’re working as expected and make adjustments when necessary.
