What is Automated Trading in Forex?

What is Automated Trading in Forex?

Forex (Foreign exchange market) is also known as the international foreign exchange market, where currencies from different countries are sold and bought freely. Forex, or free floated exchanges rates were launched around the 1970s, when some currencies started to float freely against the U.S. dollar.

What is Automated Trading in Forex

Back then, only some of the members of the market used to decide at what rate the price of one currency traded against the other and was mostly influenced by supply and demand. The currency rates, back in the early days were also largely influenced by trade. So if a particular country was actively engaged in trading, of course its currency would be in higher demand and thus have a higher exchange rate.

Given that the currency markets have the freedom and are void of any external control and the competition, the currency or forex markets are ideal for beginners to trade. It is also one of the most liquid financial markets in the world boasting of an average daily turnover of $1 trillion – $2 trillion.

Of course, most of the turnover comes from the interbank markets and the retail trading community is barely less than a percent of the trading volume.

Introduction to Automated Forex Trading

When it comes to trading currencies, traders can either trade the market themselves or make use of an automated trading program which can trade without any intervention. These automated forex trading platforms are based on a set of rules which are built into the automated trading software and can trade without any human intervention.

Traders prefer the automated trading system in cases when they are either not confident of trading themselves or when they have discovered a trading system that does not require too much of thinking. There are many benefits of using the automated trading system including the fact that traders do not hav to get emotionally involved. Emotions are one of the biggest factors that can affect the outcome of a trade and is something that needs to be controlled. Furthermore, managing emotions takes a lot of practice as well.

It is for this reason that traders often prefer using automated trading solutions which can make them money. In fact the use of automated trading systems is applied not just to the currency markets, but there are also other markets such as stocks where automated trading systems are often employed. This is partly because of the advent of computing technology which has enabled more and more traders to make use of automated trading systems, which either they can build themselves or make use of an expert advisor that is already designed for them.

How to build a good automated forex trading system?

To build a good automated forex trading system, it is essential to understand that the trading system must be mechanical. A mechanical trading system is one where trading is rule based and there is no discretion involved.

Mechanical forex trading systems are simple and easy to understand which is one of the primary reasons why a mechanical forex trading strategy makes more sense than trying to code a discretionary based trading system, which can show different results to different traders based on how they interpret it.

Besides having a mechanical trading system, a good automated forex trading system must have a good trading strategy. Without a trading strategy, there is no point in building an automated trading system. A trading strategy can be simple and complex and at the end of the day it is up to the trader to decide on how simple or complex they want their trading system to be.

For traders who are just starting out, having a simple trading system is better and it can help you to advance to more complex trading strategies later on.

Testing your trading system is as important as the trading strategy that you have used. Using market simulation software such as Forex tester can be helpful as you can get more familiar with the trading strategy. The biggest distinctions that puts you at an advantage for using the forex back testing software is that it allows you to understand the strong and weak points of your trading strategy.

Traders can therefore utilize this feedback and go back to building a more robust trading system.

In conclusion, the forex markets are one of the biggest markets in the world and this deep liquidity makes it easy for traders to make good profits. Utilizing a good trading strategy and eventually converting it into an automated trading strategy can reap great rewards for the currency trader over a period of time.


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