What Exactly Is Automated Forex Trading?

If you combined all the stock markets of the world, the currency market would be 10 times larger. Forex, also referred to as "FX," is foreign currency exchange. Forex traders speculate on the value of a currency and put trades that represent bulk quantities of currency units. The forex market is 24-hour, highly liquid and highly leveraged. This will make it may well candidate for automated forex trading.

Automated Trading

Trading in any market involves the buying and selling of instruments. These could be stocks, futures, options, bonds, forex or any other entities. Many traders place their orders themselves, in real-time, after they believe prices have become favorable for the trading strategy they use. Automated trading places orders based on computer algorithms. There is no real-time human interaction. The human involvement relates to programming the algorithms with particular strategies. When the programs are created, the computer is put to work to buy and sell instruments depending on specified criteria.

Forex

Any currency only holds value when compared to another currency. They do not have intrinsic values. The U.S. dollar may increase in value against the Canadian dollar while simultaneously falling in value against the Euro. When traders engage the currency market, they trade in "currency pairs," including the base currency and the currency used for valuation. The value for a currency pair is the same as the exchange rate between the two currencies.

Leverage

Adjustments in forex rates are minute. Leverage allows a trader to purchase a lot more currency pairs with his trading capital compared to the simple exchange rate provides. In the U.S., this leverage can be up to 100 times the normally allowed transfer of currency pair units depending on the exchange rate alone. Thus, an account with $10,000 of trading capital could purchase up to a million dollars of a currency pair. This enables traders to capitalize from small fluctuations in forex rates.

24-Hour Market

A particular benefit to automated forex trading is the ability to take advantage of strategic trading opportunities that could otherwise be missed because of sleep and other activities. Day traders of equity products, such as stock, work during normal business hours, because this is when the stock markets are open. But forex has no set schedule, thus the important moves in a currency pair could happen anytime. An automated platform will capture these events and, with strong leverage, could result in consistent daily or weekly profits.

Detached Emotions

Even when a trader has the time to trade himself, automated trading can be advantageous. The psychological challenges associated with active trading in many cases are the bottleneck that prevents a trader from succeeding. Stress is high in the trading profession, and automated trading reduces or removes most of these problems. Moreover, automated trading allows programmers and other personality types to participate in active trading once they might otherwise not consider this line of work.

Want a professional manage your forex account for you? You should open a forex managed account, see the performance for proof.