Robo trading: Everything you need to know about robotic trading

AI technology is advancing at a rapid pace and forex traders are eager to utilise the power of machine learning for their own trading strategies. According to the Federal Reserve, more than half of all forex trades are automated with the use of an algorithmic counterparty. Already more than two-thirds of forex trades are placed though algorithmic trading vehicles. But most algorithmic trading requires strong computer programming skills that many retail traders simply don’t have.

Yet AI and its applications continue to develop. Every month, retail traders are finding better ways to automate their trades through bot trading. In this article, we review some common ways to automate a trading strategy.

What is a forex trading bot?

A forex trading bot, or trading robot, is an informal name for algorithmic software that automates forex trades based on pre-determined logic. These ‘trading bots’ are programmed to buy and sell currency pairs when specific signals are triggered by price action or an indicator or whatever else the trader may choose.

They are integrated through APIs (application programming interfaces), which allow them to receive inputs from market monitoring software and they can then output buy and sell commands through your brokerage, effectively letting the program implement their trading plan.  

Automated trading programs can be programmed by traders with coding skills or they can come integrated into your online brokerage account depending on the platform. Robo trading can offer two main advantages: it eliminates human emotions from your trading decisions, and it can open and close many trades at rapid speed. Trading robots are used by many institutional traders in one form or another for these reasons.

Of course, there are also pitfalls to using trading bots. Algorithmic software is not always adaptive, meaning a change in market conditions may interfere with your strategy’s logic.  A breakout strategy being used in a ranging market can bring adverse results and it can happen very quickly as there are numerous possible trade opportunities. Forex trading robots are also continuously active and if left unattended, this can lead to a damaging impact to the trader's account as trades are taking place in the background.

How to robo trade forex

There are several ways you can begin to robo trade the foreign exchange market. You can program your own algorithmic trading strategy and connect that to your trading account via an API, or you can use AI technology like large language model chatbots to code your strategy. Some people might claim to be selling robots guaranteed to make profitable trades, but you should be cautious of such claims as the future remains uncertain, even for a trading robot.  And if the program was guaranteed to profit – why would they be selling it to you?

What is algo trading?

Algorithmic trading (or algo for short) is a type of robo trading that uses an automated computer program to open and close trades. The programs use a predefined guideline – an algorithm – to make trading decisions.

Like most trading bots, algo trading allows you to execute more trades than humanly possible in an objective format, helping to eliminate emotions from individual buy/sell decisions. While many retail traders would love to use algorithmic trading, the need for computer engineering knowledge and large amount of computer processing power are roadblocks that keep many everyday retail traders  from this form of automated trading.  

That said, algorithmic trading is a great option if you have the computer access, coding capabilities, and the financial knowledge required. Most algo trading strategies are based around price trends or trading volume or some combination of indicators. The rapid pace of algo systems and their ability to intake a significant amount of information make them ideal for short-term trading opportunities as the algo can think and react faster than most human traders.

How to create your own algo trading strategy

Most traders code their own algorithmic trading strategies, but more recently, some have turned to generating AI chatbots to code for them. Most options still require knowledge of at least one coding language, like MQL for MetaTrader. However, some software now allows you to create algorithmic trading strategies with zero coding knowledge.

Typically, after creating an algo strategy, you still have to backtest it yourself and transfer the strategy to whatever trading platform is provided by your brokerage. You can now also robo trade forex using AI language-learning models.

Robo trading FAQs:

Can a forex trading bot work offline?

Your forex trading bot needs to be connected to its API and your brokerage account to run. MetaTrader needs to be open in order to run your trades, but some bots can work even when you close out of your trading software. However, it is smart to check in on occasion to ensure your trading bot is running as planned.

What are trading APIs?

Trading APIs are application programming interfaces (APIs) that can be used to trade financial markets. APIs are essential to implement automated trading strategies for techniques like algo trading or bot trading.

APIs allow for the connection of a brokerage account to market monitoring software like TradingView. MetaTrader is another software program that requires an API connection to your brokerage of choice.

FOREX.com’s own REST API allows you to code your own algo strategies and integrates management functions like viewing your active orders and past trades alongside current market conditions. In short, APIs are what enable you to view market conditions and execute trades all in one system.

How much does a forex robot cost?

The price of a forex trading robot depends on the system. Some sellers offer trading bots for a one-time price while others require monthly or yearly subscriptions. However, buying a third-party trading bot can be risky. Most sellers will advertise incredible results only to close shop and disappear once you’ve purchased their bot.

Anyone who truly develops a successful trading bot will likely keep their success to themselves rather than sell it for a nominal fee. If every trader was given the key to trading a specific strategy, the strategy would probably no longer be profitable as many would be buying/selling at the same time, per the logic of the strategy. This is why institutional traders with complex algorithmic trading bots made by quant traders are never revealed to the public.

To learn more about developing your own trading strategy, check out our extensive Trading Academy.