Automated Forex Trading

This article aims to dispel some of the rumors, which is prevalent in the field regarding automated forex trading. Automated forex trading is being preferred to manual forex trading. With the help, this program one need not spent long hours in front of the computer. He can indulge in works that are more productive and in the same time make money. Many among the readers might be interested in knowing more about automated forex trading. We shall be seeing more about this new paradigm throughout this article.

* Automated forex trading is a program that will automatically do the functions of a trader. Your responsibility will be to enter your forex trading account credentials and initiate the software. The rest is all about sitting back and enjoying while money starts rolling. People have the misconception that such programs can never be altered. In other words, the manufacturer has set some parameters, and it cannot be changed. This is purely a lie. Ask anyone of the traders who are using such software. One will find that the program can be tweaked according to one’s liking.

* Beginners use automated forex trading software so that they get an idea about forex trading. Here is another misconception that we will be dismantling. One cannot become a professional by looking at how the software works. One will have to indulge in some real world trading so that he will be able to understand the concepts. Mere classroom knowledge and demo accounts are not going to help you. You will have to create a mini account and play with the big boys in order to get a layout of the land. Professionals design the software and if you are unfamiliar in the territory, then you are lost.

* There must be a provision in the software with the help of which one will be able to asses past and present performance. If the software is not providing any significant improvement, then there is no use spending time with such software. Usually the reputed software provides such facility. When you are investing on automated forex trading software, please ensure that it contain this comparison feature. The software should be intelligent to analyze present data and optimize its mode of operation for effective increase of profits.

* The software must do analysis of the technical and fundamental data. There are various other strategies also. In fact, newer and unknown strategies such as mathematical models are being incorporated in such software. All these procedures are done so that the efficiency of the software is increased by manifold. Researchers are working around the clock and well-versed forex traders who have been in this business for some time design many of them.

* The future of forex trading is already here in the form of automated forex trading software. Many people are switching to such software so that they can multiply their monthly earnings. If you are contemplating to invest on one of these, then it is time for you to act.

Have you ever wondered why the term automated trading is commonly used in the context of forex market out of all the other markets? The simple answer is that forex market is spontaneous and continuous which makes it best suited for automated trading. Trading in equities, futures or derivates is a totally different process. They all have less standardization and are more complex, slow, and involve erratic proceedings and duration per trade. The average size of trade in all these markets is considerably less in comparison to forex, therefore, trading in these markets can be well done manually and there is minimum requirement of automated services.

Automation works best for tasks which require less human analysis and cognition-based adaptability but more calculative accuracy and continuous monitoring. Man cannot beat machines when it comes to diligence and accuracy. With the speed of technology combined with advanced programming that replaces human analytical skills and decision making ability, we get a high functioning automated device with great performance. All these features are best fit for forex trading which is a single-commodity market.

Foreign exchange transactions among businesses and banks of different countries are constantly undertaken all the time. However, the market is open for trading only on 5 days, from Monday to Friday, but the highlight of forex is that it operates round the clock. While other markets of the world has fixed opening and closing times and can be traded in for only 5 to 6 hours a day, forex market is open for trading 24 hours a day.

Trading on forex is significantly influenced by the trade timings in other financial markets of the world. US market or US currency is the major player in forex. European market is next in line along with Asian and Australian markets. Each of these markets during its trading hours adds to the volume of forex trade as each and every transaction undertaken in these markets influences the demand for money. During the market timings from 8 am to 4 pm there is high level of financial activity which causes higher demand for liquidity and money which influences the currency prices. With high levels of market activity, huge finances change hands at national and international levels which cause the exchange rates to move rapidly giving more opportunities for a trader to tap profitable deals.

Speaking in this context, the peak times in forex fall when two different market timings overlap each other. Hence monitoring the forex markets during these times is most essential in order to enter profitable positions. Automating your operations will help you follow these time zones efficiently while you can go about your normal office or business routines. You can feed in all the necessary parameters like timings and price levels for entering a deal, number of positions to be held, currency pairs, required pip spread, and exiting point. Once you set the required profit and loss limits you can forget about your trading for the rest of the day.

Manual or regular trading is different from automated trading in several aspects. Manual trading involves direct trading through online trading account whereas in automated trading one just has to set the limits for each criterion and accordingly the system will perform various functions at specified timings.

An automated trading system works better with advanced trading softwares. It is similar to how our computer’s operating system improves the performance of various softwares run in our computer. However, sometimes the trading systems are integrated with softwares which perform just like a robot.

With constant increase in demand for newer and better trading softwares our markets are flooded with hundreds of them. However, not all of them are reliable. Every automatic system and software has unique levels of performance and automation capacity. Some of the systems prompt the user for undertaking a particular action. For instance, if the price level for a currency which the user has bought decreases beyond a certain limit then the software quickly gives a warning signal to indicate the user that his loss limit has been surpassed. Now, he has the option of exiting the trade at that precise point or he might chose to wait till the prices rise again so as to minimize the loss or to earn a profit. However, the user should go for the later option only if he is sure that the prices will fluctuate back to a higher level. This is where the need of market fundamentals or manual skills arises.

To know the behavior of a currency’s exchange rate the user should have a certain minimum knowledge about its background. Technical behavior of the currency is also an important factor which will help you to take quick trading decisions. Whatever currency you are dealing with you must know the rate at which its prices tend to bounce and how often it touches troughs. The price fluctuation patterns usually react conventionally to the overall financial and marketing activity of the country to which the currency belongs. Increased speculation and transaction demands for money in a market increase the value of a country’s currency. Further, the time zones of different markets, bank policies, interest rates, government rules, new international trade rules and similar fiscal and financial events are either followed by a positive or negative price movement for a currency.

Thus, even though automatic devices save time and energy, you are left with the decision making part of a transaction. Nowadays, most of the programs do all the work on its own without asking the user. Such systems ask for more input values at the time of initial settings to better calculate the profitability and loss involved in a particular transaction and accordingly take actions. Automated systems make you follow a fixed trading strategy which you will be finding very beneficial over time. It doesn’t give way for your momentary instincts to make risky decisions. The best option to control the extent of losses you might incur is to enter a stop loss order. This will automatically terminate your trade when the prices fluctuate beyond a certain limit in an unfavorable direction.

Before the spread of internet forex trading was not a feasible option available for common man. Trading in forex during those times was entirely the dominion of international financial institutions, banks, investment companies, and multinational dealers.

In simple words forex trading or foreign exchange trading means buying and selling of currencies of different nations for speculative purposes. It is termed as foreign “exchange” because in here a currency is bought by paying another currency. So in effect the whole transaction is nothing but mutual exchange of two currencies.

In forex continuously fluctuating prices of currencies determine the fate of a trade. This is the main reason behind forex trades becoming so popular among common people with the introduction of online trading facility. However, this popularity was not enough for its expected growth.

Forex is simple but big, and quite different from share market or funds market. In case of capital market commodities are plenty but the rate at which they are transacted is low, whereas, on the other hand forex markets a single commodity but the rate of transactions is highest. Its unmatched level of activity is attributed to its huge trade volumes. Every day currencies worth 2 trillion dollars are exchanged by way of forex trading. This figure is the minimum average sum of transactions undertaken per day. On busy trading days this amount surges up to 3 trillion dollars.

This huge volume is a sum effect of demand and supply of money throughout the world markets at national as well as international levels. All the other market transactions pass through forex market at some point of liquidation. Currencies flowing from capital market, gold market, import and export market, and other financial markets converge at one market spot called forex. As a result the randomness and frequency of transactions are always on a rise. Naturally, the price fluctuations are also too rapid and random. This makes the trade too risky as the stakes involved in the currencies bought or sold are comparatively high in forex markets. Thus close monitoring of price fluctuations is imperative to avoid losses.

When common people tried venturing into this field of trading, time constraints were the main inhibiting factor. It was lack of adequate time to watch the markets that mainly led to the development and growth of automated forex trading systems which eventually became a big hit.

Further, the online nature of forex trading also called for additional technical intervention by software developers and technology giants. However, the simplicity of forex market greatly favored automated trading as it has to deal with only one commodity. In general forex market has short trade durations. Short and medium term trading in foreign exchange is wound up within a day. Forex trading is generally used in the context of day trading or intraday trading, wherein all the positions entered in a day should be closed within 24 hours or before. This is another reason for increased demand of automated trading systems as day trading can quite easily be carried out through trading softwares.