Expert Advisors - do you need them?

As advances in technology continue to make trading more accessible to retail investors, and as the forex market becomes more competitive than ever, you need to have the right tools at your disposal. In this article, we will explain why expert advisors (EAs) are a great tool for any forex trader. You will also find out what you should consider before settling on an EA. Let’s start by defining EAs.

What are expert advisors?

In simple terms, an EA is a piece of software that either trades automatically or informs the trader when orders should be entered. EAs reduce human involvement in trading or remove it from the equation altogether, giving the trader a speed advantage. Like all computers, EAs are faster than humans. In an industry where speed and time are everything, this is crucial.

What EAs should you use?

This is the million-dollar question. The short answer is that it depends.

What is your trading strategy?

First and foremost, you should opt for the best EA for your particular trading strategy. If you’re a “plain-vanilla” trader, you’ll probably want an ordinary EA. We define plain-vanilla traders as normal traders. As a plain-vanilla trader, you probably want to open a trading account with a broker and stay with that broker for as long as possible. While this is a legitimate approach to trading, we do not usually recommend it.

Why? Well, first, profits are going to be modest. Second, risk levels will be high: simply put, it is very difficult to earn high profits by being a plain-vanilla trader, even if you’re using a scalping trading strategy. Third, if you do become too successful for your broker’s liking, the broker might start making life a bit difficult for you (for example, by ratcheting up your slippage levels) to put you out of business.

For that reason, we recommend that traders adopt either arbitrage trading or trading the news as their strategies. These are more sophisticated trading strategies that typically offer greater profits and lower risk.

Is arbitrage trading for you?

There are two forms of arbitrage trading: latency arbitrage and lock arbitrage. Broadly speaking, we prefer lock arbitrage over latency arbitrage. Lock arbitrage disguises your trading strategy; your trades look like manual trades. Not all brokers like arbitrage strategies or traders who use them. Although the use of arbitrage is perfectly legal, some brokers balk at arbitrage traders because they threaten their profits. Typically, this is because the broker is using the B-book model, where the broker is effectively trading against clients. If a client starts making money, the broker loses it. Consequently, such brokers keep an eye on unusually profitable accounts and pull the plug on the account if arbitrage trading activity is detected. While brokers have the right to do that, bear in mind that the trader is not doing anything illegal in this situation. Brokers that insist they don’t want you to use arbitrage strategies are almost always brokers that don’t want you to make money.

If you still need to deal with such brokers, lock arbitrage will help you. As mentioned earlier, lock arbitrage makes your trading look like manual trading. Your orders are not closed as quickly as they are with latency arbitrage software, and they are opened before an arbitrage situation arises and closed when the arbitrage situation is underway. Lock arbitrage is a high-profit, low-risk kind of arbitrage trading (to put it into numbers, monthly returns between 50% and 100% are not uncommon, and the risk is virtually zero).

However, keep in mind that if you get too profitable (for example, if you have monthly profits in the triple digits), the broker might put an end to your trading even when you’re using lock arbitrage. Still, you will at least get all of your money (deposit and profits) back - provided that you used our lock arbitrage software and everything was set up correctly. The broker won’t be able to find any evidence of an arbitrage trading strategy having been used, and your case will be watertight.

We are less enthusiastic about latency arbitrage, largely because it is easier for brokers to identify a latency arbitrage strategy as arbitrage. However, it is still a viable option for certain traders, primarily for those traders who seek to make a quick buck - the nature of latency arbitrage makes this easier. As long as the risk of detection is accounted for, latency arbitrage could work for some traders. 

So, is arbitrage trading for you? Well, do you like to trade daily? Are you happy with small profits on each trade? If the answer is “yes” to both questions, then you might find arbitrage trading interesting. If not, you might want to explore trading the news.

Is trading the news for you?

As the name suggests, trading the news is a strategy that seeks to profit from price changes and market moves caused by news releases. This trading technique is more appropriate for traders who are not interested in a lot of action. News traders usually have a handful of trades every week, often no more than 10. On the other hand, they use large lot sizes when they do trade to make up for the infrequency of their trading. Consequently, per-trade profits can be quite substantial (a 100% profit on a single trade is not unrealistic). If you are a “trading junkie”, trading the news is not for you. It’s a matter of temperament. If you are interested in trading the news, we offer software that will help you trade the news efficiently. We will also provide you with our recommended triggers.

You know yourself better than anyone else. Pick the trading strategy that you’re most comfortable with. However, we must reiterate that arbitrage trading strategies and news-trading strategies are more profitable and less risky than plain-vanilla trading. Even when plain-vanilla traders use scalping or money management trading strategies, their risk increases, as their stop losses need to be set at a greater distance from prices.

Now that we have briefly covered trading strategies, let’s go back to the main question.

What EA is best for you?

As with trading strategies, there is no one-size-fits-all answer. There are a number of considerations that should guide you.

• Capital - how much money are you willing to deposit in your trading account? What works for someone with several hundred dollars won’t work for someone with $1 million.
• Time - are you interested in short-term profits or long-term profits? As with the capital consideration, how you answer this question will influence the EA recommendation that we’ll make.
• Location, location, location - some countries are just better than others for trading. For example, the USA has become restrictive in regulatory terms, and some accounts are off-limits to American traders. In this case, an ordinary robot might be a better idea. This will likely also apply to you if you’re in a country that is facing sanctions or has been blacklisted.

What do we recommend?

Most important, we recommend that you determine what it is that you’d like to get out of your trading.

Determine the kind of trader that you are and which trading strategy works best, given your temperament. As has been mentioned, we recommend that you use arbitrage trading strategies (ideally, lock arbitrage) or that you trade the news, instead of gravitating towards plain-vanilla trading.

Be realistic about your profits. Remember that very high profits (in the triple digits) are unrealistic, certainly on a regular basis. Wildly high profits that are continuous are a major red flag for the broker, and your account might be shut down. If the broker is unregulated, you have a good chance of losing your profits entirely (unregulated brokers usually return the deposit in this situation, but not the profits).

When asking us for guidance, be clear on how much trading capital you have. As mentioned earlier, your capital will determine the kind of EA that we’ll recommend. You should also be clear on whether you’re a short-term or a long-term trader. Remember that your location is key to the kind of EA that you’ll need.

Where do we come in?

We offer a variety of cutting-edge expert advisors for different trading strategies and different kinds of traders. We can certainly help you choose the EA that is best for you, but you need to be very clear on what you want to achieve.