What Is Forex Automatic Trading?
- The forex market offers challenges not present in the equity markets, such as the stock market. A stock market usually has set trading hours during the day. But currency is traded all over the world, and the market is open 24 hours a day. Major moves in a currency's exchange rate might occur while you are sleeping or working another job, as no one can manually trade all the time. Automatic trading allows forex traders to participate in trade opportunities even when they are not at their computer.
- There are two primary methods for an individual trader to autotrade the forex market. Non-programmers can buy algorithms that are already built. This can include autotrading services pre-programmed by a broker for its clients. In this case, you are paying for the algorithms through your commissions. Autotrading also is attractive to computer programmers with the skills to build automatic algorithms. For this, you must subscribe to a software platform that offers a programming environment attached to a brokerage account. The options for either type of forex autotrading are widespread, as the forex market is among the largest financial markets in the world.
- While automatically catching trades in the off-hours is attractive, many forex traders undertake autotrading for another important reason. Discretionary trading is high-stress work, especially in the forex market, where the stakes are high. It is possible to make or lose a large sum of money in seconds. The emotional challenges associated with active trading may be too much for some traders to handle or to enjoy. These traders can apply their knowledge of financial markets to an algorithm instead. The result is hands-off trading that minimizes the spontaneous emotional burdens common in the field.
- One of the powerful side effects of autotrading is the ability to more effectively estimate your future success based on historical results. Most autotrading platforms include backtesting as part of their software features. Because you are building a trading algorithm for use on real-time market behavior, it also is possible to apply the same algorithm to past market prices. In this way, you can determine whether your algorithm would have been profitable historically. If it is, this builds confidence in the trading system, and you can deploy it for real-time execution. This is not as easy to do for discretionary traders, whose approach often is not as strict and mechanical.