Forex stands for ‘Foreign Exchange’, and people have been participating in Forex trading for as long as currencies have been around. From exchanging seashells, wheat, grains, gemstones, and precious metals to the buying and selling of fiat currencies today, Forex trading is a vital part of everyday life.
In the past century, Forex trading has been popularised and seen as a lucrative endeavour due to the ever-fluctuating price movements of currencies, and investors have been finding opportunities in markets ever since.
With the advancement of technology, automated Forex trading falls into favour with many due to our fast-paced schedules and busy lifestyles. Before we take a look at the types of trading software used for automated online Forex trading, we can first explore what automated trading is and what it means in the context of foreign exchange.
What is Automated Trading in Forex?
Automated trading is the use of software and specific sets of pre-determined rules and triggers that allow programmes to make trading decisions on your behalf without your manual control.
Automated trading softwares often analyse currency price charts on their own, as well as activity in chosen markets, over multiple timeframes. Depending on how sophisticated your software is and your level of expertise, it can detect patterns in price trends and spread discrepancies and help you execute orders.
In Forex, automated trading software is tailored to analyse Forex market price fluctuations and can be triggered to open and close trades between currency pairs at any given time their pre-set list of conditions is met.
How Automated Trading Works
To get started, you first choose a platform on which you would like to trade Forex, such as MT4 or MT5. On the platform, you will be able to create your custom algorithm using the platform coding language (for example, MQL4 and MQL5) and set your strategy parameters. This is a set of criteria that will allow your algorithm to place trades on your behalf. They are generally based on the timing of the trade, the price at which a trade should be executed, and the quantity you would like to buy or sell.
An example of a rule is – ‘buy USD and sell HKD when USD/HKD falls to 7.77’.
This strategy will monitor the market and currency price fluctuations 24/7, and when USD/HKD falls to 7.77 and fulfils your pre-set condition, your trade will be executed automatically.
Why trade automatically instead of manually?
There are plenty of reasons people prefer to trade automatically. The first of which includes efficiency and convenience. If you have a hectic schedule or a demanding full-time job, you can fit your strategy around your plans and strike while the iron is hot without needing to physically watch the markets all the time.
Secondly, trading automatically using an algorithm can greatly reduce impulsive decisions. As a person, you are bound to be swayed by your emotions and gut instincts when you trade manually. Implementing an automatic strategy eliminates this worry and helps you stay on track.
Finally, when you trade automatically, you can execute multiple trades simultaneously. This is particularly helpful for high-frequency traders who open and close multiple positions a day.
Platforms and Software for Automated Trading
There is plenty of software to choose from if you want to start trading automatically.
Expert Advisors on MT4 and MT5
Expert Advisors (EAs) can be used on MT4. It is developed in the MetaQuotes Language 4 (MQL4) and it allows you to customise your trading. You can choose from a wide variety of indicators and access several trading order types as you build your own algorithm. You can also engage with their community of millions of traders to exchange tactics and discuss approaches.
You can access superior trading robots on MT5, using the new MQL5 language syntax. This programme is up to 20 times faster than the MT4 one, and traders can participate in high-speed trading across multiple asset classes. Additional features include Depth of Market and tick history. Expert traders can take advantage of these features and develop strategies that go beyond the regular automated trading bot, and they can also backtest strategies before implementing them live.
MetaTrader 4 and MetaTrader 5 are both universally liked platforms with millions of active traders. MT4 is also considered the most popular platform for trading Forex. There are forums and communities you can join to learn more about trading in specific scenarios, and you can participate in them free of charge.
APIs
Traders can also use APIs to automate Forex trading. API stands for Application Programming Interface, and it is a bridge that connects two or more computer programmes to connect with each other. Traders can create APIs by themselves or use those set up by their brokers.
An API for Forex can be used on currency trading platforms, and they bridge the gap between data providers and end-users. In the Forex market, APIs can be implemented easily and connect a broker’s automated trading system to a trader’s account. This allows the trader to execute automated trades when a specific set of perimeters is triggered.
APIs usually do not cost any extra money to use when you trade with a broker who provides their own.
Is Automated Trading Right for Me?
Many traders have a hard time deciding if automated Forex trading is right for them. They perceive building algorithms to be complex and tedious, and they would rather trade manually. However, automated trading is a wonderful, easy-to-set-up strategy that also requires low maintenance once it is put in place and running.
If you find yourself having trouble impulse-trading, automating your trades may be a good idea. You may also find it helpful if you have a chaotic schedule and cannot seem to find the time to sit down properly and analyse the markets. Finally, if you are a high-frequency trader who likes to take advantage of every opportunity that comes your way, automated trading may just be the technique you need.
