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What Is a Forex Robot?

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  • Written By: Mary McMahon
  • Edited By: Nancy Fann-Im
  • Last Modified Date: 01 September 2016
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    Conjecture Corporation
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A forex robot is a utility that automatically assesses activities in the foreign exchange (forex) market and provides recommendations or independently executes trades for an owner. Trading robots can be seen in use around the world by individual investors as well as firms and researchers performing market tests of their robots. This technology requires a high degree of technical sophistication to program a forex robot accurately and effectively. The cost for such systems varies, and some are developed for internal use only.

One advantage to using a robot is the ability to process huge volumes of information at very high speeds. A forex robot can handle multiple markets at once and can also scan for relevant news, using keywords and algorithms to locate news items that may have an impact on foreign exchange markets. It uses this information to predict market behavior and develop trading recommendations. The owner can use this information to execute trades, and can also set the forex robot to automatically complete trades in some settings.

These systems do have limitations. Like investors, they can make mistakes, even with all the available information, as market movements are sometimes unpredictable. The forex robot may also weigh information poorly or fail to anticipate the impact of certain kinds of breaking news. It is only as smart as its programming, and while it does have the capacity to learn from previous events, it cannot predict anything with 100% accuracy.

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Researchers and brokers can use a forex robot to complete some trades and may compare performance between systems as well as pit robots off against humans. In experimental trials, the robot executes hypothetical trades based on real recommendations in a specific market, and the system tracks the robot's performance. It can also compare the robot with similar programs or a human trader. This can help assess accuracy and may also provide important lessons for the robot to learn from.

As with other technologies developed for use in financial markets, the forex robot can sometimes be used in scams and misleading activities to take advantage of novice or naive investors. Robots are expensive utilities that may not be widely available, and investors should probably view inexpensive systems with suspicion. Guarantees are also of dubious value, given the difficulty of making financial predictions with accuracy. It can help to look up trade publications for reviews of various forex robot systems and to consider the company behind a robot before making a purchase or relying on recommendations from a given system.

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