What a trading robot is, and how to trade with its help       

March 4, 2024
4 min read

There are different types of traders in the Forex market, and each has its own way of working. However, all traders can be divided into two groups: those who prefer to trade manually and those who stick to automated trading and use trading robots. In this article, Octa discusses Forex trading robots, also called Expert Advisors, and automated trading.    

Trading robots are automatic trading systems that, based on a certain algorithm, independently manage the trader's financial flows. An automated trading program or script is not subject to ordinary human weaknesses—it doesn't need to eat, sleep, or spend time with its loved ones. The trading robot can analyse the situation around the clock during the entire market operation hours, choose the most convenient moments for transactions, control the account balance, and monitor the execution of orders. Practice shows that using Forex trading robots greatly simplifies and automates the trader's activity.

History and types of trading robot creation

  • First generation. The prototypes of modern trading robots appeared in the late 60s and early 70s of the last century. These semi-automatic systems were based on long-term trend-tracking strategies, with sharp changes in quotes serving as a signal. They signalled traders about changes in the market, and the traders made their own decisions on what to do in this situation.
  • The second generation. In the early 70s, new robots based on statistical algorithms appeared. The first was ‘momentum, ' which monitored the oversold market using various indicators. Another one was ‘reversal systems’, which detected deviations of the traded asset from its average value for a specified period and calculated the moments when the probability of quotes returning to the average would be higher than 50%.
  • The third generation of robots relied not so much on digital price and time data as on a data set—they identified which patterns were present in the market and signalled when the pattern changed, not the trend.

Algorithms have been improving evenly with the technological progress of society. Thus, high-frequency robots (HFT robots) appeared with the growth of internet connection speed, which can make thousands of transactions per second. With the advent of artificial intelligence (AI) technology, there is no need to write an extended code—AI has taken this function over. Machine learning (ML) technology will help create a trading algorithm by observing the trader's actions.

How to choose a trading robot

The actual efficiency of a trading robot directly depends on what algorithm it is guided by. A certain algorithm often brings solid profit for a long time, and then, due to certain market mechanisms, it starts to operate at a loss. Therefore, to make money on Forex, you need to be able to not only install and run the program but also understand the relevance of its working methods. During the selection process, it is necessary to study the essential information and parameters that directly affect the profitability of automated trading.

  • Frequency of transactions. Suppose your broker has commissions for opening and closing positions. In that case, the number of operations the robot performs is important because the more orders you open, the more commissions you will have to pay. For example, the Octa broker has no commissions for entering or exiting a position. The trading robot can open as many orders as the trading signals it receives without commission issues, as Octa only considers the spread.
  • Risk-reward ratio. A Forex robot should be profitable, but what exactly do you mean by this concept? For you, how much profit is profit? After all, it is one thing if you are satisfied with an income of $50–70 per week and another if you want to earn $100 daily. The higher the expectations, the greater the risk degree. Some robots are designed for trading with conservative strategies, which are the least risky but do not promise a significant income. Other robots are suitable for aggressive trading, where large drawdowns are allowed in the expectation of large profits.
  • Trading conditions. No universal trading robots would trade with absolutely the same efficiency in any market conditions. Some robots are designed for trend trading, and some show good results only when trading during flat periods. As a rule, the description of each Forex robot tells you what type it belongs to. If you don't know what is better—trend trading or channel breakout, then pay attention to the currency pairs you want to trade. Some pairs tend to form clear and relatively stable trends, while others are more likely to move in sideways channels.
  • Sustainability. All automated Forex trading systems need to be tested. To understand how stable the Expert Advisor works, it is unnecessary to use it immediately on a real trading account—you can choose a demo one for testing. For example, Octa's trading conditions on real and demo accounts are identical, which allows you to test the robot in situations as close to the real market as possible.

Why do you need trading robots in the first place? To make money, of course. Robots do not tire and can trade 24 hours a day, seven days a week. Trading robots today can be bought or downloaded for free. The main thing is to evaluate your purchase adequately. For beginners, a trading robot can become a teacher in currency operations, and for a professional—working hands that implement the necessary trading strategy.

Octa is an international broker that has been providing online trading services worldwide since 2011. It offers commission-free access to financial markets and various services already utilised by clients from 180 countries with more than 42 million trading accounts. Free educational webinars, articles, and analytical tools they provide help clients reach their investment goals.   

The company is involved in a comprehensive network of charitable and humanitarian initiatives, including the improvement of educational infrastructure and short-notice relief projects supporting local communities.

Octa has also won more than 70 awards since its foundation, including the 'Best Educational Broker 2023' award from Global Forex Awards and the 'Best Global Broker Asia 2022' award from International Business Magazine.

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