Automated forex trading offers several advantages to traders. Rather than manually making trades, the forex trading platform looks for specific signals, such as price trends and spread discrepancies, that impact the market. It then buys or sells depending on those specific conditions. In such a highly liquid, high-risk environment, this can help maximize returns and minimize losses. But any automated system is only as good as the strategy behind it. Read on to learn more about automated forex trading, then check out our review of the top forex brokers.
Pros of Automated Forex Trading
Automated forex trading provides hands-off trading. You can set the program for what you think will bring you the most profit and then then let the platform do the rest. This has many advantages for both beginners and experienced traders, including the following:
- You trade on logic rather than emotion. This is often touted as the primary advantage of automated trading. The program will not make trades based on excitement or pressure.
- Automated trading is consistent. Strategies don't work unless they are consistently followed. By automating your trades, you ensure that the trades you want are executed every time certain conditions are met.
- It's always working. The forex market runs 24 hours a day, five days a week. Therefore, an automated forex trading system can keep making trades (and hopefully, profit) even while you sleep, work and enjoy time with family.
- Trades are immediate. In forex trading, the market can change so quickly that a golden opportunity can be gone in a matter of minutes. With automated forex trading, as soon as a trigger is tapped, the system makes a trade.
- It handles multiple accounts. Computers monitor multiple trading streams simultaneously and react to them all, something human reflexes cannot accomplish.
Cons of Automated Trading & How to Minimize Them
While automating your forex trading has many advantages, there are still dangers. Some forex traders offer automated strategies with "guaranteed" results, which are nothing more than scams. Even reputable brokers may not update their automation recommendations to reflect changes in the market. However, there are things you can do to minimize the disadvantages to get the best benefit from automation.
- Check your strategy. First and foremost, automated trading is only as good as the trading strategy you automate. Before following someone else's strategy, verify its success record. You can also test your own strategies either with micro accounts, demos or back-testing tools. You should also ensure your strategy matches the market. A trend-based strategy will not work in a range-based market, for example.
- Monitor the market. Even when you have a sound strategy, you need to avoid the temptation to simply program your trading criteria and forget about your account. The market is volatile. In most cases, automated platforms work well because they stop you from emotionally reacting to changes, but if the market takes a turn that negates your strategy, the program won't understand it needs to stop. Rather, it will continue to make losing trades. Therefore, you should keep an eye out for changes in the market that affect your strategy and alter the program accordingly.
- Limit your leverages. In the United States, leverage rates are already limited by law, but having an even more conservative leverage can ensure that if you incur losses, they aren't as bad. Of course, this limits your potential profits as well.
- Consult with other forex traders. You can find communities online where people share winning strategies in real time and warn others about scams.
Automated Forex Trading Platforms: What to Look For
You'll need an online trading platform that allows for automation. As you seek out one, check out the demos if possible and if not, look at instructional videos or the platform's user guide. Evaluate it based on these factors:
- Is the sponsoring broker reputable?
- Does the company charge extra fees for automatic trades?
- Does it have the tools you need for making orders?
- Does it generate reports?
- Does it trade the pairs you want?
- Does it come with technical and service support?
- How much customization does it allow?
- Does it provide access to forex trading communities?
- How well do the strategies promoted by the platform hold up to current marketing conditions?
The Four Best Forex Trading Platforms with Automated Trading Functions
Not every forex broker's platform offers an automated trading feature. Here are four from the best that we reviewed.
- Forex.com: One of the largest forex brokers in the U.S., Forex.com offers commission-free trades on a large number of currency pairs at low spreads. You can automate strategies on its MetaTrader platform, MT4, using Expert Advisors (EA). EAs are automated trading strategies that you can tailor to your needs. They continuously analyze the market, enact trades and work within the limits you set. It offers free hosting so you don't have to keep the program running on your computer in order to trade. TradeKing uses the same platform.
- FXCM: A leading forex broker, FXCM uses Mirror Trader for its automated forex trading platform. This program makes it easy to follow or copy other traders by automating their strategies on your account. FXCM offers hundreds of strategies for you to test and copy. These strategies are back-tested, so be sure to check how they match the current world market. FXCM recommends a trading account of $10,000. You can start with the demo account to practice, however.
- Interactive Brokers: This is an excellent forex broker that also handles trades in stocks, bonds, options and futures using Trade Workstation. The broker itself offers good prices plus strong trading platform and excellent charting tools. It offers several automated trading tools. TWS ScaleTrader focuses on declining markets. The Accumulate/Distribute Algo function lets you automatically buy or sell large quantities in smaller, random-sized increments over time to lessen market impact. It also offers several other automated algorithm sets, not all of which are focused on forex.
- TradeKing: This is one of the most popular online stock trading platforms, so forex is one small part of what it can do. However, it offers over 50 currency pairs, including some exotic currencies like the Hungarian forint. Like Forex.com, it uses the MetaTrader platform, MT4, which includes EAs and works the same. TradeKing offers a free practice account with $50,000 virtual funding.
Most investment experts agree that, when done correctly, automating your forex trading is a good idea. In addition to the convenience and consistency it offers, plus the ability to generate profits, it can help you to make decisions based on strategy and not impulse. The key, of course, is doing the research ahead of time to find the right strategy – one that matches the motion of the market as well as your personal trading style. Several forex brokers offer platforms with useful forex trading automations, so if you're thinking of taking your forex investing to the next level, give automation a try.