Forex or FX is the decentralized global market, where a large number of national currencies are traded. This is said to the largest liquid market in the world, where the average daily trading volume is more than $5 trillion.
In the present times, a large number of international traders are recommending and using foreign exchange bots. These robots are also known as forex trading bots.
What is a Forex Trading Bot?
Forex robot is a kind of computer program or software, which is based on a set of FX trading signals. The signals help the traders in deciding whether they should buy or sell the currency pairs at a certain time. Traders can simply sit back and relax, as trades are carried on automatically.
Some of the most popular robots available for retail traders are built around the MetaTrader platform. They perform a number of functions which include giving signals to place a trade or to manage trades automatically on behalf of the trader.
Different Types of Forex Robots
The use of automated trading or the foreign exchange bots may vary based on the specific needs of the traders. If you want a computer program that can simplify your trading woes, you have the following options:
- Fully Automated– This type of trading is in line with algorithmic trading. A computer-based algorithm works here on different factors, including price, time and quantity. Then the system begins the trade automatically. You can make a few changes to the technical parameters of the program as a user. However, the program will control all other aspects.
- Signal-based– This process does not involve complete automation. The computer program draws the attention of the user to the potential trades or signals, from which the user can execute a trade manually. In a nutshell, this process generates a lead, and the implementation depends on the human traders.
How Does Forex Robot Work?
Robots are gaining popularity, as FX traders hope to make more money easily from the forex market without investing too much time and energy. Traders need to find a good currency pair and the perfect time frame. A few forex robots can find profitable trading solutions even when the market is unstable. Robots follow the best trends to increase profitability, reducing the chances of loss. However, you should remember that most of the robots trade within a certain range. They can make a specific number of pips inside the tight range.
Limitations of Robot Trading
Robot trading or automated trading is quite effective in increasing profitability and also it is may be legal in some cases. However, it does not mean that everything involving robot trading is fine. Brokers often do not allow traders to use robots due to various regulatory as well as practical reasons. But the majority of the reputable or well-established brokers usually allow traders using robots responsibly.
A few programs are legal to use but not legal to buy or sell. Before using a robot, you should consider whether it is designed to download for free or someone is getting profit from the use of a robot that includes certain advertised characteristics.
Robot Differs from Regular Trading
As mentioned earlier, there are different types of trading robots. The differences between these robots are said to have a practical effect on the market interaction of the trader. This, in turn, changes how the regulators view the actions of the trader and whether they will allow it.
The semi-automatic robots do more sophisticated calculations by tracking the market, in order to recommend trades. This is quite like manual trading, but with the assistance of a robot. Most of the caveats come in fully automated trading, where trading robots have access to the account of the trader. It is riskier, as you do not have control over the program and how it is doing with your money.
Comparing Forex Robots
If you plan to invest in a forex robot, consider the following:
- Profitability – Taking a look at the profitability of forex robots over a period of time is an easy way to compare. It may involve a comparison of monthly or yearly results. You can get a detailed breakdown of different aspects which include drawdown, leverage and total pips from some comparison charts.
- Currency Pairing– Find whether the forex robot works with your desired currency pairs. All robots do not support all currency pairs.
- A Number of Trading Sessions – Forex robots are available with different trading sessions or strategies and each of them mentioning different levels of profitability and reliability. Remember that there is a higher risk associated with a higher level of profitability.
The Legal Status of Forex Trading Bots
So, the big question here is – Are forex trading bots legal?
There are no definite laws related to the use of forex robots and hence they are not declared illegal under the eyes of the law. However, trading forex through an online brokerage firm is declared unlawful in many countries of the world, where it is either restricted or outright banned. Hence, using Forex automated trading bots from those countries can face some legal hurdles, even though the forex robot itself is not outlawed. Below is a list of countries where online forex trading is either banned or restricted.
- Countries where Online Forex Trading is banned: Belgium, India, Malaysia, France, Israel, Bosnia-Herzegovina, Pakistan, etc.
- Countries where Online Forex Trading is restricted by the Central Government: Nigeria, South Africa, Russia, Ukraine, Egypt, China, etc.
The other issue that concerns the legal impact of an automated forex trading robot is when a scam or fraudulent activity is involved. Due to the popularity of forex trading bots, scores of fraudulent robots or “scambots” as they are called have started entering the market. Many governmental departments in many countries have issued public directives and notices to avoid such “scambots”.
You should be careful whenever there are promises of easy and quick money. Remember, just because something is legal, doesn’t necessarily mean it is safe or good! You have to be cautious before you choose to invest your hard-earned money!