As traders, we live in a world dominated by automated trading. Some two decades ago, robots were following humans when it came to trading, but now the reality is that the trend has reversed, with robots leading the way. However, I can give you at least three reasons why you should NOT use expert advisors when it comes to trading your own account.
An expert advisor is basically a robot instructed to buy or sell when specific conditions are met. Programming them is relatively easy and anyone with an IT background should be able to adapt to the MetaEditor or any other programming tools available for free.
Before developing an expert advisor, one needs a strategy that will pass the test of time. This can be done in two ways: either back-testing the strategy in the history center to see what results were in the past years/months, or just paper-trade the strategy for some time to see if it works.
Providing both steps are completed and the expert advisor is ready, one needs to know that applying it to a broker/chart is not enough, because by the time the platform/computer is closed, the expert advisor will simply stop trading. To overcome this, a VPS (Virtual Private Server) is needed.
A VPS is a real computer in a separate location that is guaranteed not to close the trading platform during the trading week. More than that, the VPS is actually never supposed to close unless some unavoidable, technical issue appears.
To have access to such a VPS, one should open an account with various VPS providers, pay a monthly subscription fee based on the server needs, and follow the instructions of how to best use the chosen VPS.
Using a VPS is a good way to overcome issues related to the trading platform, but there are monthly costs one needs to consider that should be deducted from the profit the expert advisor will produce, if any!
Spreads differ in volatile markets or when an important economic event, such as the NFP (Non-Farm Payrolls) in the United States, is released. If your expert advisor is programmed to open or close a trade during the NFP release or just after, then the entry or exit level will be different and results will not match the ones in testing.
Execution is important as well. Let’s say the robot has a stop loss for a long position at ten pips below the current market price and an important news item is released. Because of the ECN (Electronic Communication Network) that brokers use, it is virtually impossible for a broker to fill the order exactly at a desired level. Therefore, the actual close will be far away. So again, testing results will not match the reality.
However, none of the above is as big of a challenge for an expert advisor to manage as a lack of market. What does this mean?
A Forex broker is obligated to fill an order if there is a market, meaning that if you sell, there should be a counterpart to buy, or if you buy someone should sell. This is a market. What if there is nobody to buy your selling order or to sell when you want to buy?
You might say that is not possible in Forex trading but recent history tells us things are not always the way they are supposed to be.
Last January 2015, the Swiss National Bank (SNB) dropped the peg on the EUR/CHF 1.20 floor creating unprecedented chaos in the Forex industry. Brokers went bust, trades were stopped, and the entire industry was shaken to the core.
If you happened to have your expert advisor buying EUR/CHF before the 1.20 floor was broken and had the stops shy below 1.20, then no broker in the world would have helped you, as there simply was no market after the floor was dropped.
Actually, for a few minutes (5-10 minutes) nobody knew the real value of the EUR/CHF pair as, again, there was no market. There were no buyers for sell orders in order to close the longs. So the expert advisor would be forced to carry the longs until a market was formed.
The problem is that the market formed at around the 0.8700 level, which would have been the level the expert advisor would have closed the longs at. That would mean the expert advisor is giving up ALL of the possible previous years’ gains and still would not make up for the loss, thus demonstrating why Forex online trading bears risks when trading with expert advisors.