Backtesting Trading Systems can give you the blues Online Foreign Currency Trading - how to get involved
Apr 21

Forex Trading Robots

Forex Trading Robots have made an inroad in retail online forex trading.  Generally it is a good idea to have your best forex trading system run automatically, as this removes a lot of psychological pressure off traders that otherwise would need to manage their open positions manually.

However, using a trading robot software leads to a whole new set of issues, which is something that is easily overlooked.

Forex trading robots recently have concentrated on scalping the market, i.e. these algorithms for trading do not intend to keep a position for very long.  This of course creates problems for some Forex brokers, especially for those that hedge the consolidated open positions of their clients in rather long intervals.   What these brokers do to counter-act the negative effects they are seeing on their side is to frustrate a rather large percentage of orders that were placed by automatic trading software.

There’s a lot of other tricks such brokers can play - complaining about this doesn’t help, as you’ll get answers about market conditions, limited liquidity, whatever.  With these kind of brokers, you’ll also find that closing a losing position is often easier (faster fills, no partial fills) than closing a position that is in the money.  Go figure…

Online Forex Traders voted with their purse and said “Nay” to these Forex Brokers

In doing this, online Forex traders created a dynamic flux of Forex trading accounts that were created criss-cross around the globe, trading accounts that were abandoned almost as fast as they were opened.  The truth of the matter is: Forex brokers are currently having problems with client loyalty.

ECN Forex Brokers to the resque!

ECN Forex brokers are not market makers.  They only pass on market data from their external providers and do the same with your orders.  Incidentely, ECN is an acronym for ‘Electronic Computer Network’, which I find a rather funny description, as I don’t know a computer network that is not based on electronics… ;)

Theoretically, ECN Forex brokers offer you blinding fast ‘pass through trading‘, very fast order execution, guaranteed stop execution and narrower spreads than you might be used to.  Is this higher level of service offered to retail Forex traders indeed a good thing - or merely a marketing ploy?

I suggest you read the fine print and only do business with ECN Forex brokers that really guarantee the execution of orders of any type, include those triggered by stops and profit targets.  If this ‘ECN’ thingy is as good as they claim, these brokers shouldn’t have any problem to offer such guarantees, should they?

As far as I am concerned, the jury is still out on this one…

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