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Automated Forex Trading – Pros & Cons

By Christopher Lewis
Christopher Lewis has been trading Forex and has over 20 years experience in financial markets. Chris has been a regular contributor to Daily Forex since the early days of the site. He writes about Forex for several online publications, including FX Empire, Investing.com, and his own site, aptly named The Trader Guy. Chris favours technical analysis methods to identify his trades and likes to trade equity indices and commodities as well as Forex. He favours a longer-term trading style, and his trades often last for days or weeks.

Is automated Forex trading profitable? The short answer is yes and no. As with all matters related to Forex trading, it is more complex than it appears. I will explain under which conditions automated Forex trading is profitable and what to avoid, as the sector is ripe with scams and misinformation, leading to confusion among retail traders.

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Automated Trading Systems: An Introduction 

Over 80% of the daily Forex trading volume, which approaches $8 trillion daily, comes from algorithmic trading solutions, and the number continues to increase, but is automated Forex trading profitable?

The best automated Forex trading platforms can yield consistent profits if:

  • Forex traders code strategies with a proven track record
  • Forex traders have multiple strategies to use in various market conditions
  • Forex traders have a sophisticated algorithmic trading solution that can accurately decide which strategy to use when

Automated trading requires knowledge of a diverse array of strategies, powerful software, a trading platform that supports API trading, and experience coding in that language or access to trusted developers who will code with bulletproof NDAs and employment contracts. For example, MT4 uses the MQL4 programming language, while cTrader uses C#, but with APIs, developers can use their preferred programming language and connect to the trading platform.

AT and EA, What’s the Difference? 

AT stands for automated trading, and EA for expert advisor, but what is the difference, or are they identical?

Automated trading refers to anything related to algorithmic or automated trading and is a broad-based term. An expert advisor is specific to the MT4/MT5 trading platforms, referencing algorithmic trading solutions that traders can utilize.

MT4 is the leading algorithmic Forex trading platform, and most traders use the terms automated trading and EA synonymously, but is automated Forex trading profitable? The profitability depends 100% on which algorithmic trading strategies are used and the developers who coded them.

Automated Forex Trading Pros & Cons 

As part of answering the “is automated Forex trading profitable,” question, traders must also understand the pros and cons of automated Forex trading. It will ensure they can make an informed decision on the topic and help them implement it as their core portfolio strategy.

The Pros of Automated Forex Trading 

  • Removes emotions from the decision and trading process
  • Allows the analysis of the entire Forex market in a few seconds at the most
  • Increases trade execution
  • Ensures efficient Forex trading
  • Enables deployment of complex strategies
  • Offers 24/5 trade monitoring and risk management
  • VPS hosting for 24/5 low-latency Forex trading

The Cons of Automated Forex Trading 

  • Third-party solutions do not work
  • The automated trading sector is littered with scams and frauds
  • Most traders only have one strategy, which may have taken years to develop. Automated trading solutions with one strategy fail to adapt to changing market conditions
  • Most brokers fail to support algorithmic traders with low trading fees and ultra-fast order execution

Bottom Line: Is Automated Forex Trading Profitable? 

With 80%+ of daily Forex trading algorithmic, automated trading is necessary for efficient and effective trading, but is automated Forex trading profitable? For most Forex traders, the answer is no, as third-party automated trading solutions do not work. Most algorithmic trading solutions are well-guarded, secretive systems deployed by quantitative trading firms, hedge funds, and high-frequency trading firms. Individual traders with a profitable automated trading system will equally guard its algorithms, as it ensures they maintain a competitive edge.

Forex trading, despite popular belief, is not a social activity. The more traders crowd a trade, the less profitable automated trading systems become, while the risks increase.

FAQs

Is automated trading risky?

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The risks of automated trading are 100% dependent on the strategy the software uses, the risk management protocols it implements, and the coding of its operations.

How successful are trading bots?

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The success of trading bots depends entirely on the traders and developers who created the strategy and coded the Forex robot. The profitable bots are almost never for sale, and many of those that are available have a proven track record of failure. Therefore, the best way for traders to ensure a trading bot’s success is to code their own strategies.

Is AI Forex trading profitable?

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AI, short for artificial intelligence, remains in its infancy, and most trading applications, despite their claims and marketing campaigns, do not have AI as part of their trading solution. The profitability of the few with AI elements depends on how developers created the AI, the machine learning protocols, and the data set used to train the AI. When developed well, AI has the potential to significantly improve algorithmic trading solutions.

Is a Forex robot profitable?

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The profitability of a Forex robot does not depend on the robot but on the trader or traders who developed the strategy that the Forex robot executes. It also depends on the developer or team of developers who coded the Forex robot. Third-party Forex robots, like the thousands of EAs available for sale in the MT4/MT5 marketplace, are not necessarily profitable over the long term but may yield short-term profits in select market conditions. Only sellers of those Forex robots earn a consistent income by selling licenses and not from trading-related activities.

Can you make money with automated Forex trading?

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Traders can make money with automated Forex trading if they automate their trading strategies and do not rely on third-party applications.

Christopher Lewis
About Christopher Lewis
Christopher Lewis has been trading Forex and has over 20 years experience in financial markets. Chris has been a regular contributor to Daily Forex since the early days of the site. He writes about Forex for several online publications, including FX Empire, Investing.com, and his own site, aptly named The Trader Guy. Chris favours technical analysis methods to identify his trades and likes to trade equity indices and commodities as well as Forex. He favours a longer-term trading style, and his trades often last for days or weeks.
 

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