Investing > What is a Forex Robot?

What is a Forex Robot?

Tired of losing money on trades because of your human emotions? Cold, unfeeling machines can help.

By
Reviewed by
Updated January 10, 2022

All reviews, research, news and assessments of any kind on The Tokenist are compiled using a strict editorial review process by our editorial team. Neither our writers nor our editors receive direct compensation of any kind to publish information on tokenist.com. Our company, Tokenist Media LLC, is community supported and may receive a small commission when you purchase products or services through links on our website. Click here for a full list of our partners and an in-depth explanation on how we get paid.

Have you ever lost money because you got greedy and waited too long to sell?

The answer to this question—for most of us—is all too common: Yep! 🙋‍♂️

Maybe you were scared and exited a trade too early. Whether you’re a money-grubber or a miser, ‘robots’ can help eliminate emotions from your trades.

Forex robots trade efficiently, quickly, and more logically than humans. They will buy automatically, sell automatically, and can even make you money passively. But it’s not all roses and sunshine, some trading robots have lost their investors as much as $20 million.

In this article, we will explore the world of forex trading robots and how you can distinguish the winning strategies from the losing ones. We’ll take a look at the advantages of trading with a robot, and where they fall short. While trading with a bot can be profitable, it all comes down to your plan and predicting where the bot’s code will lose money.

Ready to learn more? Let’s jump in!

What you’ll learn
  • How Do Forex Robots Work?
  • How to Use a Forex Robot
  • Advantages of Forex Robots
  • Limitations of Forex Robots
  • Choosing a Forex Robot
  • Create Your Own Forex Robot
  • Avoid Scam Forex Robots
  • Conclusion: Forex Robot vs. Manual Trading
  • Forex Robots: FAQs
  • Get Started with a Forex Broker

How Do Forex Robots Work? 🤖

Forex robots work by taking a set of rules and instructions and applying that information to the market. They use pre-set parameters to generate profits for the traders that operate them. Trading algorithms have been around for a long time and are used in assets from cryptocurrency to stocks.

Bots are most often coded with MetaQuotes Language (MQL); a language used with MetaTrader software. Some bots are complex – capable of analyzing major news, emerging trends, and other indicators to generate returns. Others are much more simple and will just trade based on the same charts and patterns that we humans use.

Robots are great at following a trading plan and sticking to it no matter what. Traders are able to leverage the superhuman capabilities of bots to analyze more currency pairs than they could otherwise trade. The bots pick a price to enter and set target-profit and stop-loss points.

Rest assured, a robot forex trader is not a fool-proof way to make money. Of course, if someone had a guaranteed way to make money automatically, they wouldn’t be telling you about it. Some of the most optimized bots on the market are run by hedge funds, and they have high-security measures in place to make sure no one sees or touches their code. These funds are known for suing if their code ever does get out.

How to Use a Forex Robot 📜

You can use a forex robot to maximize or enhance your potential returns. You will need to understand the starting points of forex trading before jumping in, but then you can use bots to help combat emotional trades.

Some traders use algorithms to notify them of when they should enter and exit a trade. The algorithms are powerful enough to analyze many more times the potential trades than humans can see, making them very useful, especially for bog-standard, low-risk trades. 

Alternatively, you can let a forex robot run your account automatically. The most popular way to use these programs is to allow the computer to execute orders on its own – intervening only to prevent extreme losses.

forex robot UI
A forex robot UI showing all executed trades over a period of time.

While simply following trends and forex scalping with a robot trader may only make you small profits, what matters is that the gains are consistent. Using consistent returns, forex robots are able to make money for their investors over a period of time—successful strategies can be funded with more capital to increase profit.

Unusual Scenarios ⚠️

When it comes to using a bot, you should worry about what happens when the market makes a sudden, unexpected change. You may remember the Flash Crash of 2010; the stock market took a sudden and unexpected downward plummet at 2:45 (which happened because of institutional trading bots, but that’s a different story). Well, what happens if something like that occurs on the forex market?

While some people may think the forex market is better insulated from these kinds of sudden plummets, they are becoming increasingly common. Depending on your currency pairs of choice, you may be exposed to more risk.

You should develop a plan for these kinds of situations. There are times the bot is going to breakdown; to secure your gains, you will need to turn it off and take over manually.

The challenging part of using a Forex Robot is determining when the market is doing something extraordinary. How do you know you aren’t just letting your human emotions take control and you’re introducing the potential for loss?

Ultimately, it will depend on your experience and skill as a trader. Sometimes we believe that signals are telling us the market will move one way, but then it takes the opposite turn. More time on the market will help you understand what is normal.

Pros and Cons of Forex Robots

Pros

  • Robots can trade when you aren’t around, increasing your potential for returns.
  • You can customize algorithms to fit your trading style and risk tolerance.
  • Bots eliminate emotional trading.

Cons

  • They are better at generating profit in the short-term than in the long-term.
  • There are many fraudulent vendors selling trading bots.
  • Bots are unable to react to any situation that they aren’t specifically programmed for.

Now that we’ve seen a brief overview, let’s take a closer look into the benefits—and aspects to watch out for—when it comes to these machines.

Advantages of Forex Robots ✅

Forex bots came with some great upsides and many of the top-rated bots are easy to get started with. Moreover, you will be able to try them out in a safe, paper-trading environment. Also, you even have the power to change filters, sell-percentages, and other configurables on your own. The added level of optimization is key to generating profits.

Forex bots can have good track records of generating returns but it can be tricky to track down what exactly these records look like. You will have to be cautious when evaluating trading robot companies because they are notorious for cherry-picking data to make their returns seem big and juicy. 

While some will claim to have high-return rates, others are fly-by-night operations guaranteeing high returns without backing it up with any data. These businesses will often shut-down before you even discover that you’ve been scammed.

The main advantage of forex robots is that they eliminate the biases and emotions that humans have. The robots are able to trade consistently, and they are able to trade without sleep, which makes it easier to tap into optimal forex trading hours. So if you step away from the computer, they can keep going.

In fact, the big financial institutions you can find all throughout Wall Street conduct the huge majority of their trades via trading algorithms. If you master the way of the trading bot, you can possibly set up a similar (but extremely downsized) operation for yourself, so the potential advantages here are high.

Limitations of Forex Robots 🚨

Traders who are considering using a forex robot have a few things to think about. While the machines can be an asset for some people, they might contribute to sinking your entire account. 

Scams do happen in the forex industry, and forex robots are no exception. It’s often hard to determine what is trustworthy information, and what is garbage out to steal your money. Learning to spot scams will be critical to finding a good bot. You can try your hand at making your own bot if you aren’t interested in parsing swindlers.

Forex robots shouldn’t be used to run your entire account. Some traders who use these algorithms will portion out a set percentage of their assets to be managed by the computer. This is because it’s easy to lose cash with a bot. They will react consistently in the market, and that means they are ill-fitted for unlikely scenarios.

Even without all the issues that humans introduce into trading, they aren’t able to adapt the way that humans do; a lot of scenarios can be accounted for when you are building your code, but sometimes the market will do things that can’t be expected. That’s why it’s possible to lose your whole account with trading algorithms.

How to Choose a Forex Robot 🦾

Before picking a forex robot, you need to know that whatever option you go with is going to require some babysitting. Forex robots cannot react to every situation—sometimes, losing connectivity with your robot can mean account-wiping losses. There are a few factors that you should watch for when analyzing a bot.

Data 👨‍💻

Good bots will have extensive information on backtesting. This will give traders data on slippage, returns, execution of trades, and variable spreads. 

All of this information should be provided by companies that are offering a legitimate product, and you will want to be wary of data that seems significantly better than competitors. Investigate why a bot would outperform the competition. 

While it may be possible a company is using new disruptive technology, it might just be a scam with a shiny package and a hefty price tag to boot. Either way, take that into account before purchasing a bot.

Drawdown 📉

A good drawdown rate for your trading account is going to be anywhere from 5-30% with manual trading. When you hand trades off to the bot, this rate needs to be on the lower side.

Because the bot is trading systematically, you won’t want them to have so much control over your account that they could drop to figures in excess of 30%. You also don’t want to be putting too little capital in them to trade with. After all, if you are spending money on a bot, why not take full advantage of it?

Testing the Robot 🦿

It has become more and more common to be given access to free and risk-free trials for trading software. You can do this with some top forex broker trading accounts, and you should be able to do that with a good forex bot. A free demo account will be especially critical if you have never used a bot before.

Demo accounts allow you to access a test environment that lets you use fictitious data and markets to analyze how your bot reacts to situations. This is a good way to learn the earnings potential of a bot with realistic variables that you submit.

If you find that you are not comfortable using the bot, or if your strategy is losing money, then this may be the time that you decide not to use a robot trader. If you like the demo account, this gives you valuable time to adjust your strategy and see if something works better.

Researching Sellers 📚

Traders are used to having to research everything. When it comes to picking a forex robot, things are no different. Research the company you are buying the bot from. Oftentimes, a company’s website is not the best place to look for legitimate and non-airbrushed opinions on a product.

Try to find third-party reviews with substantiated information on the product. Doing your due diligence can save you from crushing losses. If a bot doesn’t have any reviews, or if it seems like the information is too good to be true, be wary and avoid the company.

How to Create a Forex Robot 💡

If you can’t find any third-party options that fit your specific requirements for a trading algorithm, you might want to create your own. Creating a bot will require you to be knowledgeable on coding, alternatively, you can contract a programmer to help you get up and running.

To create a forex robot you will need to start with a broker that works with the MetaTrader software—fortunately, most top-tier forex brokers use MT4, and there are numerous free coding resources for this platform online. Then you will use the MQL coding language to start creating algorithms to trigger buy and sell limits.

Most forex robots run out of the MetaTrader 4 platform, which offers algorithmic and forex expert advisor trading. These features make it ideal for loading a robot trader and running with it.

You will need to extensively test your bot in a paper-trading setting before launching into the live market. You should try to account for common trade scenarios and work out exactly what your bot would do in each of them.

How to Avoid Scam Forex Robots 🔎

Scams are an ever-present problem for traders in all kinds of markets. No one wants to lose money to these people, and advisory boards want you to stay away from them. Here’s how to avoid dirty deals.

Guarantees of Profits 🚫

There is no guarantee that any trader, whether a robot or a human, will make any money on the forex market. There is always the potential to lose your entire account. If a company guarantees returns, they are likely selling you a bridge.

Shady Reviews 🚫

You want to avoid companies that have too little information on them. Most of the time, the best products are going to come from established businesses with a recognizable brand. This is the reason some companies are so eager to portray authenticity and popularity by setting up social media accounts and buying fake followers and reviews.

Read reviews and try to determine whether they are real and avoid reviews that are on a company’s own website. Also, keep in mind that “third-party” reviewers can also be biased or even paid by the company to post positive reviews—it is not out of the question for a scam company to do this so sharpen your senses if you see overwhelmingly positive comments.

Cherry-Picking 🚫

Also known as data-mining bias, cherry-picking is when a company picks the most flattering data to advertise their robots. You can tell a company is cherry-picking their data if the bot they advertise has significantly better statistics than competitors. These claims should be substantiated by replicable tests.

Conclusion: Forex Robot vs. Manual Trading ⚖️

Forex robots aren’t for everyone. While they might upgrade the average trader’s returns, they also introduce the potential for huge losses. They should be used by traders who have experience in forex markets and are comfortable with adjusting the algorithm as situations change.

If you are looking for a new trading robot watch out for scams and shysters who are out for your money. They are common in these markets, but almost always easy to spot.

Forex Robots: FAQs

  • Are Forex Robots Legal?

    Trading with an automated forex bot is legal, but opinions differ on how trading algorithms impact the market. Some regulators and analysts believe that automated robots increase market volatility and lead to flash crashes.

  • What Online Brokers Allow Robot Trading?

    Many online brokers allow robot trading by using built-in or third-party software. Both IG and eToro have automation functionality.

  • How Much is a Forex Robot?

    Forex robots can be purchased for as low as $20-$50 and increase in price to several thousand dollars. Some traders create their own trading bots for free.

  • How Do I Activate the Robot in MT4?

    Activating the MT4 robot will depend on the brokerage account you are using. Most brokerages will have a setting for enabling automatic trading.

  • Do Forex Robots Really Work?

    Forex robots can work well, but it takes a knowledgeable trader. Not only do you have to know how the market works, but you also need to know how to adjust an algorithm.

Get Started with a Forex Broker

Fees
Average spread EUR/USD standard

0.9

N/A

All-in cost EUR/USD - active

0.363

N/A

Minimum initial deposit

$250

$0

General
Total currency pairs

93

105

Demo account?
Social / copy trading?
Rating
Fees
Average spread EUR/USD standard

N/A

1

All-in cost EUR/USD - active

N/A

0.7

Minimum initial deposit

$0

$100

General
Total currency pairs

105

82 (in US)

Demo account?
Social / copy trading?
Rating
Fees

Average spread EUR/USD standard

0.9

N/A

1

All-in cost EUR/USD - active

0.363

N/A

0.7

Minimum initial deposit

$250

$0

$100

General

Total currency pairs

93

105

82 (in US)

Demo account?

Social / copy trading?

All reviews, research, news and assessments of any kind on The Tokenist are compiled using a strict editorial review process by our editorial team. Neither our writers nor our editors receive direct compensation of any kind to publish information on tokenist.com. Our company, Tokenist Media LLC, is community supported and may receive a small commission when you purchase products or services through links on our website. Click here for a full list of our partners and an in-depth explanation on how we get paid.

Cookies & Privacy

The Tokenist uses cookies to provide you with a great experience and enables you to enjoy all the functionality of the site.