The Advantages and Disadvantages of Automated FX Trading
A lot of traders look into automated FX trading because of the convenience this type of trading brings. However, it is very important that you consider all of the advantages and disadvantages that come with these systems. You should also consider what the process of setting the system up is and whether this will really help your trading or not.
Automated FX Trading
Automated FX trading is trading the forex market with a system that completes the practical aspects of trading for you. Of course, the level of success you will have with an automated system will vary depending on the system and the market conditions. When you look at the system you should consider what you have to do in order to set it up. Most of these systems require a set of rules from you which tells them when to trade and what to trade.
To create these rules you need to have a trading strategy and system in place. You need to tell the system what indicators to look for, what your risk policy is and when to exit the market. This is easy enough to do if you understand how to trade on the forex market. The problem comes when new traders look at using an automated system. These new traders may not know what they should be telling the system and this often causes bad trades.
The Advantages of an Automated System
It is always best that you look at the advantages that you can get with this type of system first:
- One of the biggest advantages of these systems is that they completely remove emotions from trading. As the system is a computer programme you do not have to worry about it emotionally holding onto a trade once it has turned bad or becoming greedy. This is a major advantage for new traders who may not have control of their emotions.
- These systems are also very consistent in their trading. The system will not divert from the rules that you have given it.
- All automated systems allow for the back testing of strategies to ensure that they will work. Back testing uses historical data to determine whether the parameters you have set for the system will work.
- The entry speed of the order is also much faster when you use an automated system. When you trade manually there is only so much you are able to do in a set timeframe. Many traders lose their profits from not being able to enter their trade in quickly enough.
The Disadvantages of an Automated System
While it is good to know all the advantages of a system you should also be aware of the disadvantages:
- The biggest disadvantage of these systems is that they can suffer mechanical or software failures. When this happens all the information you have given it could be lost. The system may also begin to make trades that are not based on your rules.
- Most people believe that automated systems can be set and forgotten, but this is not actually true. You need to monitor the system to ensure that it is trading correctly.