The forex market has become an attractive trading market for global traders due to the innovative trading solutions offered by forex brokers and trading platforms. The forex trading industry has rapidly grown to a level where automated trading makes up the majority of the total trade volume that is generated in the forex market. Hence, exploring this segment of trading would be great for someone who is looking for modern trading techniques where you get to trade with minimal effort on your part. One such modern trading solution that is growing in popularity at the moment is auto trading forex. So, we have made this comprehensive guide to automated trading which can help you as you move forward with forex automation. Better Know
What Is Automated Trading?
Automated trading refers to a trading style in which the trading process will be entirely carried out by a computer system using algorithms and programs. The trading activities will take place automatically without having to enter and exit trades manually. This technique of forex automation is also known as algorithmic trading or black-box trading. The automated trading software or system can also monitor and analyse the market with the help of artificial intelligence to spot trading opportunities based on the pre-programmed trading strategy.
An automated trading system will also be following a specific trading plan similar to a manual trader. In fact, traders also have the option to automate their own trading strategies for a hands-free trading experience. To use some of the software solutions for forex automation, you will need to have some knowledge about coding and programming skills. But these days, the technology has become advanced enough as we have some platforms where anyone can design an automated trading system with little to no knowledge in coding.
How Does Forex Automated Trading Work?
The working of forex automated trading is pretty similar to a manual trading system. The only difference is that an automated trading system will be using a computer program or software to analyse the financial markets, identify trading opportunities, and execute trades on behalf of the trader. The program uses a set of predefined rules and algorithms to determine when to enter or exit trades. The software can be based on different strategies, including technical analysis, fundamental analysis, and price action analysis.
The software monitors the market in real-time, looking for any trading signals that meet the predefined criteria. Once a signal is identified, the program automatically places the trade, taking into account the trader’s predefined parameters, such as the trade size, stop loss, and take profit levels. The software then monitors the trade and automatically closes it once the market conditions meet the predefined exit criteria.
Automated trading systems can also use machine learning and artificial intelligence to continuously learn from the market and improve their performance. This approach is known as automated machine learning trading. The actual functioning involves the use of complex mathematical models which makes automated trading superior in terms of accuracy and speed. The key highlight of automated trading is the elimination of emotions which is one of the main reasons for the popularity of automated trading systems.
Advantages of Automated Forex Trading
- Increased Speed and Accuracy: Automated trading systems can quickly analyse market data and identify trading opportunities in real-time. This means that trades can be executed much faster than manual trading, reducing the risk of missed opportunities or delayed trades.
- Eliminates Emotional Bias: One of the biggest advantages of automated trading is that it removes the human emotions that often come with manual trading. Automated systems are not affected by fear, greed, or other emotions that can cloud judgement and lead to irrational decisions.
- Consistent Trading: Automated trading systems can execute trades consistently and accurately, ensuring that the trader’s rules are always followed. This can help to eliminate the human errors that can occur with manual trading.
- Backtesting: Automated trading systems can be backtested using historical data to evaluate their performance. This allows traders to optimise their strategies and improve their trading performance.
- 24/7 Trading: Automated trading systems can operate 24/7, meaning that trades can be executed round the clock and it can be a great way to take advantage of major trading sessions in the forex market.
Disadvantages of Automated Forex Trading
- Technical Issues: Automated trading systems can be affected by technical issues, such as connectivity problems, software glitches, or data feed errors. These issues can lead to missed trades or other problems.
- Over-Optimization: Automated trading systems can be over-optimized, meaning that they are designed to perform well on historical data but may not perform as well in real market conditions.
- No Flexibility: Automated trading systems are designed to follow a set of predefined rules, which means that they may not be flexible enough to adapt to changing market conditions or unexpected events..
- Cost: Some automated trading systems can be expensive to purchase or require ongoing fees, which can be a significant cost for some traders.
How to Start Auto Trading Forex
Step 1: Choose a Forex Broker
The first step to start auto trading forex is to choose a forex broker that supports automated trading. Most reputable forex brokers offer automated trading solutions. When selecting a broker, consider factors such as fees, security, functionality of their trading platform, and customer support.
Step 2: Choose a Trading Platform
Once you have selected a broker, the next step is to choose a trading platform. A trading platform is the software used to execute trades. Most brokers offer their own trading platforms, and there are also third-party platforms available. The most popular trading platforms for automated trading are MetaTrader platforms. Both MT4 and MT5 support automated trading but the MT5 platform can be a better choice due to the advanced capabilities offered by it.
Step 3: Create or Find a Trading Strategy
The next step is to create or find a trading strategy based on which solution is more feasible for you. A trading strategy is like an action plan that tells how the process of trading will be carried out. The ideal trade setup and best prices for entering and exiting trades will be decided by the automated system based on the strategy feeded into it. There are many different trading strategies, and it is essential to find one that works for you. You can create your own trading strategy or use a pre-made one.
Those who already have some experience in trading with a profitable trading system or strategy can surely try automating their strategy for an effortless trading experience. But beginners are recommended to use the ready-made automated systems available to them before devising their own trading system from scratch. It is important to backtest your trading strategy before deploying it in live trading.
Step 4: Test and Optimise
Before deploying your trading strategy in live trading, it is essential to test and optimise it. Backtesting is the process of testing a trading strategy on historical data to see how it would have performed in the past. Forward testing is the process of testing a trading strategy in real-time using a demo account. It is important to optimise your trading strategy by making adjustments based on the results of your testing.
Step 5: Deploy your Trading Strategy
Once you have tested and optimised your trading strategy, the final step is to deploy it in live trading. Most trading platforms have an option to automate your trading strategy. You can set up the parameters for the strategy and let the software execute trades for you. It is important to monitor your automated trading system and make adjustments as needed.
- Is Auto Trading Forex Profitable?
Auto trading forex can be profitable based on the efficiency of your trading system. However, there is no guarantee of profitability in forex trading.
- What Is The Minimum Amount Required To Start Auto Trading Forex?
The minimum amount required to start auto trading forex varies depending on the broker and trading platform. Purchase of ready-made algos can add up to the cost of trading.
- What Is The Best Trading Platform For Automated Trading?
The best trading platform for automated trading depends on your individual needs and preferences. Some popular options include MetaTrader 4 and 5, cTrader and ActTrader.
- Is Auto Trading Forex Risky?
Auto trading forex can be risky if you do not have a risk management plan that works with the automated trading system. Automated trading is not free from market risk and risk management is a must for minimising potential losses.