Automated Forex Trading: Is It Worth It for Beginners?

There was a time when forex trading was restricted only to banks and financial institutions. But with the introduction of online trading platforms, it has opened doors, welcoming individuals throughout the globe.

Each second, in the foreign exchange market, about $850 million worth of currencies are traded, where one buys the currency and simultaneously, the other sells with the aim of generating profit from the price difference between the two. But today, as the technology has advanced, the trades no longer need to sit behind the screens, monitor charts for long or even trade manually.

Thanks to Automated forex trading.

It is a type of forex trading that is driven by algorithms and expert advisors (EAs), offering a hands-free trading solution that appeals to both experienced and new traders alike. But the big question is, is it actually worth it for beginners?

Let’s find out in the post below by evaluating its pros and cons for new traders.

What is Automated Forex Trading?

As the name suggests, automated forex trading is the method of trading forex by using trading bots or computer programs to execute trades on your behalf. These systems are designed using a set of predefined rules, like entry and exit points, based on various indicators, price action, or trading strategies. Once you activate the program, it can automatically place, manage, and close trades, even while you are sleeping.

These programs are typically built on popular trading platforms such as MetaTrader 4 (MT4) or MetaTrader 5 (MT5) using strategies like RSI thresholds, moving average crossover, etc. and can be either purchased or custom-coded.

Pros: Why is automated forex trading gaining popularity?

No one can deny the fact that forex trading can be overwhelming for traders, especially newcomers. Between learning how to read charts, understand currency pairs, and apply technical analysis in forex, the learning curve can be steep.

So, the idea of having an automated system take over can be extremely tempting.

Here’s what makes automated trading appealing to beginners:

• No need for constant monitoring: There is no need to constantly monitor the screen as the software does the watching for you.
• Emotion-free decisions: Fear and greed are the common pitfalls in manual trading, but with automated forex trading, all these emotions are removed.
• Faster execution: In forex, execution speed matters. At one place, wherein manual trading involves you to execute trades at your pace, bots act in milliseconds, which can be critical in forex.
• Opportunities to back test: This is the best part, as you can test your strategy on historical data before going live.

Cons: Why does trades needs to be cautious?

While automated forex trading seems like a perfect shortcut to enter the market, it is worth noting that it is not foolproof, particularly when you are not sure about what you are doing.

This is because:

• No system is set-it-and-forget-it: Even the best bot needs regular monitoring. Market conditions change, and a strategy that worked last month may fail miserably this month.
• Garbage in, garbage out: If the rules you set (or buy) are flawed, the bot will execute bad trades. Just because it’s automated doesn’t mean it’s smart.
• Over-optimisation risk: Some bots are overfitted to historical data, meaning they perform brilliantly on back tests but poorly in live markets.
• False security: Beginners may feel too comfortable using bots without understanding the basics of trading. This can be dangerous.
• Costs and scams: There are countless "too-good-to-be-true" systems out there. Some promise unrealistic returns and are designed to lure in beginners. Do your due diligence.

Should you try it as a beginner?

The honest answer to this question is yes, but obviously with caution. You need to remember that the automated trading, be it forex or other markets, should never be seen as a replacement for knowledge.

Instead, it is a tool.

So, if you understand how it works, know about its limitations, and learn how to use it to complement your growing knowledge of the forex market, it can be highly helpful to you. Before diving into automation, make sure you understand the basics. If you're new to the scene, start with a well-structured forex trading guide that breaks down essential concepts like pips, spreads, currency pairs, and risk management.

Conclusion

In conclusion, the automated forex trading is not a magic bullet that can work on your behalf. But it can be a valuable tool in your trading journey, especially if used wisely. If you are a beginner, then the best approach is to combine education with technology.

You should never use bots as a crutch to avoid learning. But, instead, it will be helpful for you if you use them as an assistant that helps you trade more efficiently once you understand the basics.

I'm a passionate trading blogger with a focus on simplifying complex financial concepts for everyday investors. With experience in forex, commodities, indices, and copy trading.