Automated trading robots, also known as Robotraders, help users trade the financial market with little or no effort. The bots are designed to analyze the market, identify the best opportunities, and trade on the user’s behalf.
Robotraders have existed for many years now. Many inexperienced traders have easily entered the market through these platforms to trade stocks, crypto, forex, and other assets. But the big question remains are they profitable? Do people make reasonable profits using them, or is it better to stick to regular trading?
The direct answer to this question is Yes. Retail traders, professionals, and companies will still use Robo-traders. Automated trading is growing more popular. Its popularity can only be attributed to its effectiveness.
That said, there are a lot of scams online. Some of which involve unrealistic claims. Many have fallen victim to dubious companies whose auto trading robots caused people to lose money rather than earn. Traders must be aware of this while considering using this trading style.
Sticking with well-known and regulated brokerage companies is the best way to avoid getting scammed. Understanding the different forms of robot trading and determining which fits your goal is also essential.
The different kinds of Robotraders
Robotraders come in various kinds. The simple ones come in the form of trading signals. These robots analyze the market and inform traders about buy or sell opportunities. The trader opens their positions themselves and set all the necessary orders.
The main trading robots perform more complex tasks. The trader does not have to get involved except for funding their accounts. These robots place the trades after identifying opportunities. Advanced robot traders can perform thousands of trades within a minute. But those are not accessible to everyone as they are costly.
Another kind of robotrader is the Expert Advisor in forex trading. The EAs are customizable and allow you to automate your trading activities. Some brokers even allow you to design EAs according to your trading preferences. The EAs work like generic trading robots, providing signals or placing the trades. It depends on how you customize it and if they are fully or partially automatic.
The fully automatic robot trader opens and exits positions according to the data it gathers from price movement. The partially automatic ones gather data, present the details to the user, and offer advice. The partial auto trader may tell you when to open trade, exit, place stop-loss/take profits, etc. But you get to execute these actions fully. These bots are highly effective. But its profitability partly depends on the user since the robot has to act on instructions and rules.
Robo-Advisors are another type of robot in the financial world. These offer financial advice and can help you set up and manage your investment portfolio.
Advantages of trading robots
- Less emotional and psychological strain
Trading robots are not susceptible to excitement or fear that may cause humans to deviate from their trading plan. The robot will adhere strictly to the formula or instructions set. It will respond quickly to trading signals without emotions or overthinking. And if the signal is favorable, it results in a profitable trade for the user.
Different trading rules and strategies are programmed into automated trading robots. Backtesting allows traders to apply these rules and procedures to past market data. The goal is to ensure that these programmed strategies are credible and can effectively generate profit. Backtesting enables the trader to tweak the trading idea if necessary. It also gives an idea of profit expectations.
Trading robots can scan and analyze more data than any human trader. They also do this faster. This increases efficiency and enables them to develop more effective strategies quicker.
- Less work for the trader
One of the most significant advantages of robotraders is the little effort required on the trader’s part. You can carry on with other routine activities while the robot takes care of your trading. However, it is essential to check on your positions from time to time. It allows you to make necessary adjustments or update some settings if required.
Disadvantages of trading robots
- They follow instructions strictly.
Trading robots do not look at the news or consider fundamental analysis. They work according to the instructions that are programmed into them. A trading idea or strategy can become outdated at any time. This would render the robot ineffective and lead to a loss for the trader.
- Its features require constant monitoring
Because a robot trader acts on instructions, the trader must constantly observe its effectiveness. The programmer, too, has to monitor its functionalities continuously. Adjustments must be made once the programmed rule starts getting outdated. Not only these, connection issues, power problems, and computer crashing, can affect its performance. Monitoring it ensures the trader can take appropriate measures on time to minimize loss.
- Trading robots can fail
Though backtesting lets you check if a robot will be profitable, you can only test on historical data. Past price behaviors do not guarantee future movements. So there’s still a possibility that the robot can perform poorly.
In addition, there are a lot of scams, as mentioned. Some robotrading systems promise unrealistic profits. It is safer to only trade with a well-regulated and recognized broker.
Here are a few other ways to avoid robot trading scams:
- Thoroughly read the terms and conditions
- Research all the robotrading systems claims
- Read their reviews on third-party or independent websites
- Ensure you can test the system before investing. Be wary of any system that does not offer a demo.
Robotraders are still profitable in 2022. It depends on how you use them. From this article, you can see that automated trading still requires some effort, contrary to popular beliefs. They are most effective when used as a tool rather than trading on complete automation. They can provide you with profitable signals and help you improve your skills.