The Rise of the Robot Advisors


There has been an increase in the use of robots not only in the engineering world but also in finance, particularly in the area of trading. Automated trading for example refers to the use of a computer program or software to create orders and automatically submit them to a market center or exchange.  Automated trading systems and electronic trading platforms can execute repetitive tasks at speeds with orders of magnitude greater than any human equivalent. For example, many hedge funds make use of “algorithmic trading” which is a fully automated order entry based on a computer trading model. These systems can be designed to trade forex, stocks, options and futures based on a predefined set of rules which determine when to enter an order, when to exit a position and how much money to invest in each trading product.

Retail Investors have now entered this space through the use of Robots

Auto-trading is becoming increasingly common in retail forex trading.  It is accomplished through the use of robots or expert advisers. A forex robot is a piece of automated forex trading software that automates trading decisions. The most popular robots are built around the Metatrader platform. Expert Advisers are very useful when one has a forex strategy that is strictly mechanical and does not require a human in the decision-making process. The main advantage is that it effectively eliminates all human biases, errors and emotions in the trading process.

Sample of Forex Robots

Source: Metatrader

How does it work?

The two ways that retail traders can make use of auto-trading or robots include (i) purchasing or renting a forex trading robot or (ii) developing or coding a trading software.

 Advantages of Robot Trading

  • Automated trading minimizes emotions in the trading process;
  • Robot trading preserves discipline. The fact that the trade rules are established and trade execution is performed automatically means that discipline is preserved even in volatile markets;
  • A robot is not prone to human error;
  • Robots are consistent. One of the biggest challenges in trading is to plan the trade and trade the plan;.
  • Improved order entry speed. Since computers respond immediately to changing market conditions, automated systems are able to generate orders as soon as trade criteria are met.
  • Robots react quickly to market movements. While humans take a few seconds or longer to digest market information and figure out how to react to price movements, a forex robot can react instantly and execute a trade faster than a blink of an eye.
  • Trading diversification. Automated trading systems permit the user to trade multiple accounts or various strategies at one time. This has the potential to spread risk over various instruments while creating a hedge against losing positions.

Disadvantages of Robot Trading

  • Mechanical failures such as internet connection issues and power outages;
  • Automated trading systems require monitoring; and
  • Over-optimization. This refers to excessive curve-fitting that produces a trading plan that is unreliable in live trading.

Overall, whether you decide to apply your own expertise, purchase, rent or code a forex robot, the bottom line is that ROBOTS DO NOT SLEEP. One of the characteristics of the FX market is that it is open 24 hours a day. However, humans cannot possibly stay up all day and night throughout the trading week just to keep track of price action. A forex robot can be programmed to watch market movements without the need to rest or even take breaks.  The robot simply follows a set of rules based on technical indicators or price action and can execute trades automatically.

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