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Forex robots (Expert Advisors): friends or foes?

As technology has developed, so too have the tools you can use to trade. With the introduction of expert advisors, it’s now even possible to let artificial intelligence trade on your behalf. This software is only growing in popularity among traders, but there are some things to consider before deciding whether to use one. 

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What are forex robots or expert advisors?

An expert advisor (EAs), or a forex robot, is a form of trading software that identifies trade options for its users. It could do anything from advising you to make a trade, to automatically executing trades on your behalf. This may sound like a great way for people with a limited understanding of the share market to start making money, but there’s a bit more to it than that. While there are many potential benefits to using an EA, the main purpose for this software is to take human emotion out of the trading equation. 

How do they work?

Most notably running on the MetaTrader 4 (MT4) platform, EAs are used to monitor and trade financial markets based on algorithms. Once a trader sets the parameters for their EA, it will find opportunities based on those requirements, either suggesting a particular course of action or making the trade automatically. Once your position is open, an EA can also add conditions including stops, trailing stops​ and limits.

While EAs are automated, their effectiveness comes down to how well their parameters have been set by the user. EAs are primarily used for forex trading​ but can be applied to any market that’s available on MT4, including indices​ and cryptocurrencies​. 

Pros and cons of forex robots & expert advisors

One of the biggest advantages to using a forex robot or EA is that it can work non-stop. A market is open somewhere in the world 24 hours a day/seven days a week. With an EA, you can be active in the market at any time of the day, so trades can happen while you are asleep or at work. You don’t need to be present to monitor the market and complete trades. At the same time, because you don’t have to be as active, using an EA could potentially take out a lot of the stress and fatigue you might get working extensively on the market. It can also consider far more variables than most traders would be able to, and it can consider those variables for several different currency pairs​ at the same time.   

As mentioned earlier, one of the primary benefits of using an EA is that it takes human emotion out of the trade. Human emotions can cloud decision-making and lead a trader to deviate from a strategy. An EA won’t get cold feet on making a trade for fear of it not being the best deal, it will just stick to the plan. 

This, interestingly, is also one of the major cons for EAs. While they can take the human element out, they cannot come up with strategies of their own and therefore they cannot adapt to changing market conditions. The people who have found the most success using EAs have done so by working extensively maintaining their settings and parameters.

Ultimately, an EA is only as good as the person using it. 

What should I consider before using an EA?

Before you start using an EA, it is important to understand what it can and can’t do for you. As discussed, EAs are most effective when using them as a tool to help execute your overall trading strategy. If you are just looking to get started in trading and think using an EA will help trade for you while you sit back and get rich – as some providers suggest – think again. 

While EAs can certainly simplify the trading experience, they still require work on your behalf. As the saying goes, if it sounds too good to be true, it usually is. This raises the issue of scams.

Unfortunately, the forex marketplace in particular is incredibly attractive to fraudsters, so it’s important to do your research and make sure the provider you're using is legitimate before you give away any of your personal or financial information. If a site is offering guaranteed profits and daily returns, it’s best you look elsewhere. 

The bottom line on EAs

Expert advisors or forex robots can make a great addition to a trader’s toolbox. They can allow you to be more active in the market despite spending less physical time trading. Further, taking out human emotions means things like fear and greed aren’t going to compromise your strategy. At the same time, they aren’t a silver bullet to making profits on the market, and will only be effective if there is real knowledge guiding the EA. There are also a number of scam sites out there pushing EAs, so doing research into what product you will use is crucial.

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