What is automated forex, and can it produce even better returns than a person trading?
Will it mean that I will not have to physically trade forex anymore, and do I design the forex trading system?
The answer to these questions may surprise you.
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Forex Trading Robots
Automated or automatic forex can be defined as the ability to trade forex with the use of a trading program or forex trading robot, without needing a human to physically trade a forex system. With forex, automated trading is an emerging field that began not that long ago.
Note that any returns in a trading system in the past does not equal or guarantee future returns.
There are 2 general categories of automated trading:
1. Automated trading through managed forex. Some, though not all, forex managed accounts are traded via automated forex. In either case, the trading is passive in that you don’t have to do it. But in the case of automated forex, the trading program or robot executes the trades of their trading system, rather than a human team.
2. When you program your own or someone else’s forex system into a program with programming and automatic trading abilities such as WealthLab, or other trading program. Wealth Lab required programming skills (the programming language used is similar to Pascal), while other programs just emerging that will allow you to select parameters and test your system performance.
Advantages of automatic forex trading systems
What are the advantages of automated or automatic forex trading, whether it’s with a managed forex account using a trading robot, which is a much easier way as you do not have to design or program a system, or with Wealth Lab?
They are:
1. You do not have to physically trade the system.
2. Automated trading can take trades at anytime of the day or night. This is particularly important for systems where the performance is increased when taking a majority of trades in the system, which occurs in systems where trading opportunities occur at times when the person may be sleeping or otherwise cannot get to the computer. So being available for trading 24 hours a day, unlike a trader can, will the profitablility of these systems.
3. You can trade multiple systems, such as systems that rely on different types of indicators, or which trade shorter or longer time frames, in order to diversify risk, as well as to smoothen out your equity curve and reduce drawdown.
4. An automated system is unaffected by a trader’s psychology, which can sometime cause a system to be not traded properly. If your trader discretion causes you to improve performance, then that is fine, but if it causes a worse performance than if you traded the system mechanically, then this is an issue that is overcome by automated forex.
5. Enables the development of new systems that may be difficult for a human to trade, such as systems with a high frequency of trades using tick data. Designing a system is no longer be limited by how practical or easy it is for a person to trade it.
These benefits of automated forex of course is based on the fact that:
• You have chosen a profitable forex system and has acceptable drawdown, as evidenced by historical performance.
• The forex system is not just mechanical, but is fully programmable.
• You are aware, with either active trading or automated trading, that you must monitor the performance to see that the system is still working as well as its past performance.
Hence, that's why it's mentioned that you'll have to use a automated forex provider inclduign managed forex, or DIY with WealthLab for those inclined that way.
Latest developments in automated forex trading
Recently, EBS, a provider of forex trading has launched EBS Spot Ai automated trading interface, which performs automated forex trading. As well as this, they also offer their own historical forex data, with EBS Lab, where you can test forex trading systems. Their source of their historical data is the same as the live streaming data that the automated trading will be using.
The EBS Lab supports testing of:
1. Mathematical models2. Arbitrage models3. Risk management models4. Streaming executable prices
With EBS automated trading, you can place 20 orders at any one time. It is estimated that about 12.3 billion dollars is now traded via the EBS Ai, which is about 9% of EBS’s total traded volume. It’s a reasonable amount of trading.
Olsen, founder of Oanda, said in an article on Wall Street Technology, published on August 22nd 2005, that he was building algorithms based on tick data, in order to design systems for high frequency trading. He said very few people were looking into this area of forex trading. In fact Oanda now has their own product called API (Application Programming Interface), which allows users to program and test forex trading systems. The programming language that users will need to be able to program in are C++ or Java.
And now Reuters is also brining their own automated forex trading software into the market in late 2005.
It looks like more big guns are starting to play the game.
More on Wealth Lab
If you have a mechanical trading system that is programmable, plus you have trading software such as Wealth Lab, where you can program your system into, and which can generate buy and sell orders, then you can start to set up automated forex with an online broker with accepts automated signals from Wealth Lab, such as esignal.
You’ll need to be able to write code for Wealth Lab, something which is not intuitive for most people, but is something that can be done by someone who knows Pascal.
So if you know computer programming, or know someone who does, and has an interest in forex trading, then you’re in business :)
The Future Of Automated Or Robot Forex
It's likely that in the near future there will be more programmers offering their skills to code Wealth Lab and other programmable forex trading robots.
And as an alternative, there will be more providers of “labs” and automated trading software where a trader without a programming background can use a program to design and backtest a forex trading system. This will enable those interested in designing forex systems to do automated forex trading.
Also, there’s bound to be more providers of automated forex via managed forex, that will automatically trade a successful system that their team has already designed. This is the “easiest” way, as you do not have to design the system, as all the hard work has been done!
But of course you’ll have to do your homework to ensure that the system is a good one from looking at their historical or backtested performance, that the providers are legitimate, and what their commissions and fees are.
Watch this space for more managed and automated forex providers emerging soon. There’s one that is producing high returns every 3 - 4 months with a relatively smooth equity curve, using their own automated trading software, but it is not yet available for private investors. They may soon.
Automated forex and forex robots are already here, and will get even bigger.
