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Foreign exchange bots – Scam or do they actually work?

Find out whether you could profit from using a bot.

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Finder is committed to editorial independence. While we receive compensation when you click links to partners, they do not influence our opinions or reviews. Learn how we make money.

Investing in foreign exchange has become increasingly popular and this is also resulting in an increasing number of investors considering using foreign exchange robots or ‘bots’ for short. Not all bots work well, and if you use around four to five bots set on recommended settings, only one or two might yield profitable results.

Looking for a forex trading platform?

Data indicated here is updated regularly
Name Product Minimum Opening Deposit Minimum Spreads for Major Currencies Commission Minimum Trade Size Platforms
BlackBull Markets Forex Trading
USD 200
0.0 - 0.8 pips
$0
0.01 lot
MetaTrader 4, MetaTrader 5
Margin FX is a complex financial product and traders are at high-risk of losing all of or more than their initial investment.. Trade up to 64 currency pairs with a New Zealand registered and based provider.
IG Forex Trading
AUD 0
0.6 - 1.5 pips
$0
1 lot
MetaTrader 4
ProReal Time
Margin FX is a complex financial product and traders are at high-risk of losing all of or more than their initial investment.Choice of trading platforms. Choose optional extras like advanced charting, reporting and order types. Over 90 currency pairs to choose from.
Plus500 Forex Trading
NZ 100
Variable and adjusted according to market spread.
$0
Varies with instrument
Plus500 Web Trader
Margin FX is a complex financial product and traders are at high-risk of losing all of or more than their initial investment.Open an account and experience Plus500's easy-to-use proprietary trading platform, 24/7 online chat support and free real-time forex quotes.
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What is a foreign exchange bot?

Foreign exchange bots are computer programs that help indicate if you should buy or sell currency pairs at any given time. One of the main advantages of using forex robots is that they’re not associated with the psychological factor that can affect human judgement.

You can find a number of forex bots over the Internet, but you should take into account that there is no foolproof system that can guarantee long term returns.

Are foreign exchange bots even legal in New Zealand?

At the time of writing, foreign exchange bots are legal in New Zealand. However, over in Australia, the Australian Securities and Investments Commission (ASIC) has criticised the Reserve Bank of Australia (RBA) over foreign exchange anomalies, blaming the cause on bots.

Do these robots actually work?

A foreign exchange robot works in entering trade orders by replacing a human trader and relies on trading strategy as implemented by the program. The creators of such programs set in place a range of mathematical rules, which the robot then applies to generate returns. The functioning of any such program, as a result, depends largely on its creator.

The commands that bots execute depend on their technical analysis tools, but good programmers make use of backtesting to get optimal results. While programmers can automate this process, it would require making certain tweaks so as to improve performance in areas like placing stop-loss orders and maximum drawdowns.

What types of foreign exchange bots are there?

The use of foreign exchange robots for automated trading can vary depending on specific requirements. If you’re considering using a computer program to help simplify your trading woes, details of your options are as follows:

  • Fully automated. This kind of trading is in line with black-box or algorithmic trading. Here, a computer-based algorithm works on facets like price, quantity and timing, and then initiates the trade automatically. As a user, you can make some changes to the program’s technical parameters, but the program controls all other aspects.
  • Signal-based. There is an absence of complete automation in this process. A computer program draws a user’s attention to potential trades or signals, and the user then manually executes the trades using the services of a broker. So, while the program generates leads, the implementation is up to human traders.

Is it possible to compare bots?

If you’re considering investing in a foreign exchange robot or more, consider the following.

  • Profitability. An easy way to compare foreign exchange robots is to take a look at their profitability over a period, which would involve comparing month to month as well as year to year results. Some comparison charts give you a detailed break down of aspects like leverage, drawdown and total pips.
  • The number of trading sessions. Foreign exchange bots come with a different number of trading sessions or strategies, with each offering its own level of profitability and reliability. The use of such technology gets users to do away with carrying out extensive calculations or spending time in selecting suitable settings. You get to decide desirable profit levels but bear in mind that higher the desired profit level, the higher the risk.
  • Currency pairing. Make sure you find out if the foreign exchange robot you plan to get works with your desired currency pairs. This is simply because not all such robots support all currency pairs, and you should ideally look for ones that pair the New Zealand dollar with maximum currencies.

What are the pros and cons of using foreign exchange bots?

Pros

  • More trades. A foreign exchange robot can generate considerably more trades when compared to a human trader. It can also work at replicating its actions across multiple time frames and markets.
  • The psychological factor. Human traders can let their emotions rule their decision-making process, but with a foreign exchange robot there is no psychological factor to worry about.

Cons

  • Scams. While there are some foreign exchange bots that deliver positive results, there is no dearth of promoters who market bots for no other reason than to make money. Before you choose one, make sure you check its credibility.
  • Risk perception. While human traders can perceive risk in turbulent times, risk perception with forex robots does not work in the same manner.
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Beware: there are risks using bots!

Know that there is no foreign exchange robot that can guarantee you returns, so don’t fall for tall claims without exercising due diligence. Remember that while the temptation of using foreign exchange robots might be strong, their delivery has a lot to do with understanding the largely random nature of financial markets the world over.

Frequently asked questions

Disclaimer: This information should not be interpreted as an endorsement of futures, stocks, ETFs, CFDs, options or any specific provider, service or offering. It should not be relied upon as investment advice or construed as providing recommendations of any kind. Futures, stocks, ETFs and options trading involves substantial risk of loss and therefore are not appropriate for all investors. Trading CFDs comes with a higher risk of losing money rapidly due to leverage. Past performance is not an indication of future results. Consider your own circumstances, and obtain your own advice, before making any trades.

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