What is Robot Trading?
Robot trading involves the use of a specialised piece of computer software to undertake trading behaviour. This may be limited to identifying trading opportunities and providing alerts that may specify when a particular action should take place. In other circumstances, the functionality of the trading robot may be to automate the entire process. The automated trading software will use the parameters of the trading strategy to identify trading opportunities in financial markets, execute trades on the trading platform, and provide an alert outlining the details of the particular trade.
Robot trading is popular with respect to both forex trading and CFD trading. MetaTrader 4 and MetaTrader 5 are two of the most advanced online trading platforms. They have been specifically designed to cater for algorithmic trading and are suitable for trade automation.
For clarity, it is important to note that robot trading can be described using a number of terms including Expert Advisors (EAs), Copy Trading, automated trading, algorithmic trading, and algo-trading. All of them involve the use of computer-based software.
The software may be utilised to do one or more of the following:
Traders can set pre-programmed instructions related to certain variables like time, price, volume and stop-loss levels. These instructions are based on the trading strategies outlined in their trading plan. The algorithms follow this strategy, opening and closing positions on the trader’s behalf. The program will do so only when the market conditions satisfy the programmed parameters.
How do forex trading robots work?
Forex trading robots are designed to remove the psychological element of manual trading. It is not uncommon for new and experienced traders alike to deviate from their trading plans. As a result, trading robots will consider the trading parameters that have been set by a trader and conduct market analysis to identify trading opportunities.
The trading robot will then process an immense amount of information taking into consideration technical indicators and any day trading strategies that have been built into the programming language. These may include:
The benefit of trading with an advanced trading platform such as MetaTrader 4 or MetaTrader 5 is that they have a wide range of in-built technical indicators and trading tools. These are accessible across all account types including demo account and live trading accounts.
What are the benefits of automated trading?
There is a long list of advantages to having a computer program monitor the markets, identify trading opportunities, and execute the trades. They include:
A substantial amount of global financial markets including forex has extended trading hours. Unlike other exchanges such as the stock market, forex can be traded 24 hours a day, 5 days a week. Automated trading software uses a dedicated Virtual Private Server (VPS) to create a unique trading experience that allows it to execute trades at any time of the day.
This is one of the key benefits of robot trading. Not only is the trading process automated, but the software can also apply trading rules to historical market data to effectively conduct backtesting. Moreover, once the parameters are set and a trading plan implemented, a trader does not have to constantly conduct market analysis.
Is a revolutionary way to invest in financial markets. It involves automatically copying the trades executed by successful investors. You do not need to be a qualified programmer or even create a strategy as copy trading allows you to copy the traders of your choice with a single click.
Another benefit of automated trading is that it allows traders to run multiple accounts and strategies simultaneously. One trading profile may focus on trading forex while another strategy may trade exclusively in shares and cryptocurrencies. With more than 10,000+ products to trade on FP Markets, automated is an effective way to diversify your trading portfolio.
Traders should note that the growing interest in automated trading has increased the opportunity for scams. To minimise the risk of this occurring, consider regulated brokers such as FP Markets who provide a safe and secure trading experience.
Identify trading opportunities
Conducting technical analysis can be extremely time-consuming and it is impossible for a human to analyse data at the rate of a trading robot. Not only does the computer software identify trading opportunities, but the API also allows it to communicate with the platform and execute trades without error.
With manual trading, there is always the possibility of error. This may relate to position size, currency pair, or execution price. This can be catastrophic and severely impact profitability. With algorithmic trading, traders can avoid the pitfalls of human error.
Minimise Trading Costs
Trading robots will identify the optimal entry and exit points. This will take into account liquidity levels and market volatility. Doing so effectively ensures that brokerage fees are kept to a minimum ensuring maximum profitability.
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Examples of Robot Trading
Historically, the bulk of automated trading was carried out by large financial institutions such as banks and hedge funds. An increasing amount of individual traders investing in global financial markets has expanded the demand for robot trading. Traders no longer have to create their own algorithmic trading strategies and can instead use software that has been created and tested by professional traders.
There are thousands of trading robots available in the MQL4 marketplace which are available for purchase or rent. These trading robots are also known as Expert Advisors (EA). Once installed, they are automatically linked to your FP Markets trading account and can execute strategies on your behalf.
Through AutoTrade, clients of FP Markets can access the most advanced copy trading techniques using a state of the art mirroring service. Only the best systems are shown with traders able to easily add and remove AutoTrade systems at any time depending on their trading activity.
MetaTrader 5 is a multi-asset platform that allows automated trading in forex, shares, metals, commodities, indices, and cryptocurrencies. The marketplace has thousands of ready-made algorithmic applications but also allows traders to develop their own trading robots.
Allows traders to find, follow and copy successful traders automatically. There is no need to build your own trading strategy or conduct research on financial markets. Copy-trading removes many of the complexities of trading and is ideal for inexperienced traders. The trading is completely automated and there is no need to make any trading decisions. FP Markets Copy Trading system ranks traders based on their profitability using a number of time periods. This is an easy way for new traders to learn and access global markets.
How Do You Implement Robot Trading?
Fast trade execution and access to real-time price quotes are essential when using automated trading. The same applies to an understanding of the most common trading strategies used. Some of the features required and strategies used include:
Robot Trading Strategies
Auto-Hedging: These trading strategies aim to minimise risk exposure. Many traders choose to engage in the automated rebalancing of portfolios to hedge their exposure to market risk, exchange rate risk and volatility risk.
Statistical Strategies: Based on the analysis of historical data, the system can identify trading opportunities and long-term trends. Past market data is analysed and given preference over current market data.
Scalping: Also known as arbitrage, this is a method of taking advantage of the price difference between multiple markets, in order to gain from the difference in market prices. As currency pairs are represented in pips, this process may involve opening significantly large positions. This is countered by the fact that there is a guaranteed return.
Market Sentiment: This strategy looks at the momentum of markets and follows trends. The automated trading software will identify the entry and exit points, executing the trades accordingly. Learn more about algorithmic trading strategies in forex.
Robot Trading Features
Fast Trade Execution: This is critical when using automated trading strategies as it has a direct impact on profitability. Forex scalpers often use high-frequency trading strategies to enter and exit multiple positions in a day. With incremental price changes in a currency pair being in pips, every millisecond makes a difference in terms of trade execution. FP Markets has dedicated servers to cater for this and have won multiple industry awards for trade execution.
ECN Pricing: Our Electronic Communication Network (ECN Pricing) allows us to stream price feeds directly from our liquidity providers. As a result, we are able to ensure deep liquidity which translates to very competitive spreads. FP Markets regularly trades major currency pairs from as low as 0.0 pips.
Virtual Private Server: There is a need to worry about servers crashing or issues with internet connectivity. We’ve partnered with Liquidity Connect to provide a customised, ultra-low-latency solution for our clients that ensures fast execution and minimal slippage. Our VPS solutions use cutting-edge technology that ensures trade executions are done in milliseconds.
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