What are Forex Trading bots?
Put simply a forex trading bot is a tool that automates trades on the foreign exchange market. Each bot is different and will be using different strategies in order to decide whether it should place a trade or not. Effectively the bots are hardwired to look out for certain patterns or reactions in the market that indicate whether the market will go up or down for a certain currency pair.
The benefits of using a forex bot
Efficiency: One of the best features of a forex bot is the fact it can run 24/7 without you having to be at your screen monitoring the charts. Naturally for people with a busier lifestyle this is a very useful element and the main reason most people start using forex bots. Not only this but you are able to run bots on all different pairs so you could be trading 5-10 charts at once, whereas a human could only manage 1-3 effectively.
Removes Emotions: Emotions are a factor that can prevent all traders from being able to succeed, whether you decide to pull your trade out before it hits take profit or decide to revenge trade after hitting your stop loss. With forex bots they are not affected by this at all and they work completely off the data that is preset into them. Therefore they will avoid over- trading or making rash decisions that humans can make when trading.
Track Record: Although past performance is not a representation of future performance it can give you a very good idea of how the bot has performed recently. Good bots should be able to provide you with at least 6 – 12 months of data from the bot so you can see that before you commit to using it on your funds.
Disadvantages of using a Forex Bot
Lack of Control: Most bots are based on algorithms which means that when price does a certain thing it will place a trade. This can cause huge errors during news times as the market price can move so quickly causing it to place invalid trades. Most bots will have an option to turn off for an hour if there is predicted news like CPI (Consumer Price Index) rates being released.
Dependence on technology: It’s easy for there to be one small issue in the code which causes the bot to make a mistake. If for some reason it used a lot size that was too large or forgot to use a stop loss, you could have your whole account blown. It’s very important to note, when using a forex bot, never risk more than you can afford to lose.
Scams: This is a very important topic as so many of the bots available on the market are complete scams. Although they may have worked for one or two months there is no long term proof of them being profitable. Furthermore the developer could decide to stop updating the bot which means after purchasing you could be left with a bot that does not work at all.
Rejected Funded Account Payouts: If you decide to run the bot on a prop firm / funded account rather than your personal account you must be aware of how many other people are also using this bot. A lot of firms will now analyse the trades before providing the payout and if they notice that the same trades are placed on multiple accounts they will stop the payout. This can even be if 5/10 people have the same trades. So it is highly risky to run most forex bots on a funded account.
What to look out for when buying a forex bot
Payment Structure: If they charge a huge upfront fee for the bot that is a massive red flag for me and suggests that they don’t trust the reliability of the bot themselves. A monthly fee is a better option as they are forced to continue updating the bot and ensuring it works otherwise all their members would cancel their subscription. However the biggest green flag is a % based fee whereby you will have to give them a fixed percentage of the profits you make. This means they don’t make any money at all unless their bot works as you only pay when you have success. This shows that they completely back the reliability of their bot and also means they will have to keep providing updates in order for them to make money.
Historical Performance: If they are unable to provide you with all the data for every trade taken over the last 6 – 12 months then they are not even worth debating. All good bots will be able to provide you with at least 6 months of data and should be able to provide more. It’s important to check if they have any live trades that havent been closed too, as some bots will leave a trade open until it comes back into profit. This helps to keep the bots win rate high however it could lead to liquidating your account while the trade is in drawdown.
Team Behind The Bot: If you can see who the team is that have produced it and they have made themselves public this is a very big green flag when buying a bot as you have an element of trust there. If the team is completely hidden its way more likely to be a scam.
Reviews: When doing anything in forex you should always check their reviews. Although people can fake reviews it’s still important to check as you may notice they have lots of bad reviews which is a clear sign to stay away.
Too Good To Be True: The old age saying of if it’s too good to be true probably very much comes into play here. If they are suggesting they can make 20%+ on your account per month it’s almost definitely a lie. The biggest banks and hedge funds aim for 2% a month so there is no chance a random bot can make 20% consistently every month otherwise it would be bought out by huge hedge funds.
Are Forex Trading bots worth it?
The reality is most forex bots don’t work effectively otherwise they would be used by huge banks and not sold for a few hundred dollars to individuals. However, that being said, some can be very successful. I would only ever use the ones that take a performance fee rather than an upfront payment and I would need to see at least 6 – 12 months of previous data before I would be happy to start. If I was ready to go ahead then I would only use them on real funds that I can afford to lose. That way I wouldn’t risk not getting paid out by a funded account and I can accept the loss of my funds if a mistake is made. The key thing in all of trading is to never risk more than you can afford to lose and realising that slow and steady really done win the race. The markets aren’t going anywhere so it’s better to wait a few months and find the right bot rather than rush into it and lose your capital.
