Forex trading robots: how do they work?

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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.

About
Octa

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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