Trading Foreign Exchange Using Software
Monday, October 6th, 2008The business of trading foreign exchange has benefited greatly from the explosion in the use of personal computers and the internet. The proliferation of technology has made trading faster and more effective. Perhaps the most dynamic technological development has been in the area of software. If you are accustomed to trading manually, you may be in for a pleasant surprise to find out that automating your trading can save you considerable time and frustration.
If, for example, your style of trading depends on the sudden volatility caused by the release of certain economic news reports, you may have experienced the anxiety and stress of trying to get your order manually set up and executed within a very narrow time frame prior to the expected release. If the market starts to react significantly before your trade is properly set up, you might lose out on a potentially lucrative trading opportunity. Assuming you were able to get in the trade before the spike in price, you may still have trouble getting out timely in order to realize your desired profits.
Software can provide a valuable solution for the trader. Having software do the work in setting up and exiting the trade tends to take the personal emotion out of the process. Arguably, one might even feel less guilty about a losing trade if one could blame the software. Some software packages make it possible to enter many consecutive trades in a matter of split seconds. This would be impossible for a trader manually setting up and exiting the orders. One known software package even provides something called the flusher which automatically shuts down orders when certain conditions exist. This is a highly desirable feature, since leaving a position open could expose the traders account to significant risk of loss under certain circumstances..
In times past, software for trading the FOREX was designed only for large financial institutions. Accordingly, the cost for such software was extremely pricey. Presently, the price range for software available to individual investors is from about $399 to several thousand dollars. There seems to be no shortage in the selection of software offered to the trading public. Many packages are sold online and usually pop up in the form of a Google ad when a search is performed for things FOREX-related.
The source of trading software varies. Often, software may be developed by an individual trader with programming skills. On the other hand, it may be developed by a large corporation. As with any software, the level of technical support provided is an extremely important selling point to be considered by the buyer. Trading the FOREX can be difficult enough in and of itself without the complications of nonperforming or sub-performing software. Sometimes traders can find great support from an online forum or networking group where members come together to freely share their experience, knowledge and skill.
Software for trading FOREX is often referred to as an expert advisor (EA) or a robot. Certain brokers platforms allow the software to interact directly with the market information being fed through the platform. One such platform is the Metatrader 4. By far, more brokers utilize their own proprietary platforms, which may not accommodate independently developed software. One need not be a large programming house to develop trading software. Assuming you have programming skills, amateur or professional, you are free to design your own EA based on your own strategies and attach it to a platform which is designed to accommodate random programs.
As a means of testing the effectiveness of FOREX software, a procedure called back-testing is often used. This process simply involves plugging in historical financial data to determine how the software would have performed if certain underlying assumptions and parameters had been used during the prior time in question. While this procedure may provide some useful information, the best indicator of effectiveness will come from forward-testing in which the software is utilized in a demo or live account on present market conditions as they occur.
A special kind of software is available which has the ability to take market news and interpret it in such a way as to provide trade signals for its users. Some vendors claim their software is able to perform this task in a matter of milliseconds. If true, this would obviously give traders utilizing this software a tremendous advantage over those using their human eyes and brain to interpret the relevant data. This rate of speed involved in delivering the market news is made possible by data feeds from certain commercial news services like Reuters and Bloomberg. The cost is quite prohibitive to most but is sometimes shared by trading groups who pay a monthly service fee to access it and spread the cost among the members.
As FOREX trading among retail investors continues to grow in popularity, it is only a matter of time and competitive intensification that technological advances will become affordable to most. The past few years have witnessed this same type of market penetration take place when high speed internet came within the reach of many computer owners. As trading software continues to proliferate, the quality should also increase.
Sandy Robinson, J.D.
\r Copyright 2007
If you are ready to change your future by stepping into the exciting world of trading FOREX, go to http://www.winningtradersassociation.com for more information. Author Sandy Robinson, J.D. is part of the Winning Traders Association, an educational organization founded by John Beiler, President. The organization consists of a network of committed trainers and motivated traders willing to provide support to those interested in trading foreign exchange. Many of the members work from home.
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