Automated forex trading has become a common currency trading practice among all kind of forex traders, especially new traders. The flexibility and scalability of the process has also made forex more profitable and popular.
What is Automated Forex Trading?
Simply, automated forex trading is the trading of currency pairs using automated software. The software constantly scans market feeds, price changes, news, graphs and pattern formations, and uses complex calculations using present and past market data to find profitable opportunities. These programs usually use sophisticated traditional indicators and pattern analyzers to find pattern formations, bottoms, tops, crossovers, breakthroughs, trading volume changes, spread discrepancies and arbitrage opportunities. On finding the opportunity, the software generates signals and automatically places orders to buy or sell. These automated trading systems are also known as algorithms, black-boxes or robots.
As every trader's goals, trading style and risk tolerance differ from others, these automated systems require some user defined pre-determined rules for finding opportunity and for placing trades. The rules can include anything from finding spread discrepancies to placing the right order size for a currency pair. Also the features and setup of these systems differ considerably and the way they interpret the market feeds also differ considerably. There are both web-based and system-installed algorithms available today.
Advantages of Automated Forex Trading
1. Unemotional and Consistent Trading: As there is very low, if not no, human interference in data interpreting and decision making, the basic human emotions like greed and fear do not control any trading decisions. So trades will be more reasonable and consistent.
2. Time Saving and Absentee Trading: Traders can trade round the clock and virtually can go anywhere they want during trading hours. Most trading software programs are entirely customizable to make them personalized to your trading style and requirements.
3. Faster Trading and Quick Capitalization: With automated systems, the buy or sell orders are placed instantaneously. Because all criteria are pre-determined the orders can be placed so fast to capitalize on any prevailing market situations.
4. Good for Speculators, Arbitrators and Newbies: Both speculation and arbitration needs fast response to market movements and is almost impossible with manually controlled trading software. Also for new traders having not much trading knowledge and market experience, automated trading can be a better option for testing the strategies, making profits and to avoid human emotions.
Disadvantages of Automated Forex Trading
1. High cost and up-front investment: Most of the advanced automated trading systems are costly to buy or comes as a package with some pre-requisites to meet. And the trader needs to invest in creating the trading infrastructure which include one ore more computers, high-speed internet connection, power backup and alternative backup systems.
2. Not so easy to understand and operate: For a new trader or for one does not having much technical knowledge can suffer operating the trading systems with multiple windows. Also setting the right rules and using the right parameters can be a bit tricky.
3. Trades are as good as the rules: As the analysis and trades are conducted according to the pre-defined rules defined by the trader, the trades will reflect his trading knowledge and market experience. Fore example relaxed rules can generate many or false trading signals and tighter rules can generate no signals at all.
4. The trading systems differ considerably and the forex brokers charge differently for automated trading. Also automated trading is usually limited to a handful of very popular currency pairs.
This article is written for Orient Financial Brokers, the leading middle-east online currency trading broker offering advanced forex trading software with lots of features.
Article Source: http://EzineArticles.com/?expert=Russel_Rashid
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