Pak.Lang
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You’ve seen the ads: You dig out your credit card, buy a Forex bot, and by this time next month you’re picking out your Porsche. Except in the 20 odd years since they appeared, only one group of people have gotten rich with Forex bots (hint: not the end users). In this article, I discussed Forex bots with some veteran investors. The outlook isn’t optimistic. Here’s why:
Yeah, sure it works. It transformed my money into less money.
What’s a Forex Bot?
A good way to rip-off amateur investors. Also, any sort of software designed to buy and sell on the foreign exchange, on the end-user’s account.
The earliest Forex bots were simple tools; they allowed Forex traders to automate spot transactions. In time, some traders realized that amateur investors were really impressed by this. Amateur investors are also impressed by crayon scribbles, so long as you put “J P Morgan” on it.
Some traders then started to write Forex programs (bots) that automatically bought and sold according to various algorithms. They claimed that, thanks to their super secret algorithms, any end user would be able to trade like an expert.
Of course, it's drafted by the CFO's son. Just take our word for it.
It took minutes for every third rate programmer and scam artist to jump on the bandwagon. Today, there are Forex bots coded by people who think the Euro is a German dance move. There is incredible diversity in the types and performance of Forex bots, and their costs range from free to several thousand dollars.
Forex bots have become unpopular, because:
There is no accountability
Amateurs can’t evaluate bot performance
Bots can make trading harder, not easier
Bots have high risk defaults
They are not less stressful
1. There is No Accountability
There’s no way to verify the seller’s claims, not when it comes to Forex bots. What, you’re going to check every last (fake) review?
Even if you manage to verify some of the reviews (I have no idea how), remember you don’t have statistics on the number of end-users. For all you know, the claim may feature one success storey out of 10,000 end-users. It’s the equivalent of casino or lottery advertising: Look at this one guy who won so much! Forget the thousand odd losers behind him!
Look, there are real testimonials. From bigbux 1, bigbix 2, bigbux 3…many different people.
Also, you have no idea who’s coding the Forex bot. It might be a veteran Forex trader / coder (true for bots like Forex Decimator). It might also be a part-time student, who agreed to do it for $.350 and a Mars bar.
Forex software may look complicated, but remember: If no attention is given to the algorithm, any code monkey can write a program with a bunch of links and spreadsheets, then off-load it at $400 a pop.
2. Amateurs Can’t Evaluate Bot Performance
When I asked which Forex bots can perform, I was e-mailed a list with more statistics than Enron ducking for cover. But apparently, this was the point the investors wanted to make. One of them (who wanted to remain anonymous) wrote:
“Is that making money? Most of the trades are profitable, but it’s exposed to outsized losses. You see very a nice picture, but you don’t understand that a single loss will wipe out the whole lot. The risk is so high that the small gains are not worth it.”
Of course I understand it. The purple line thinks the blue line is a ****, and they're separating.
A simplified example: It’s like playing a game of Blackjack where, every hand you win, you’ll make $10. But a single loss will cost you $1000. Even if you win 10 straight games in a row, a single loss will more than wipe out the profits. On paper, it looks like this:
10 wins, 1 loss. (Looks awesome right?)
In real money terms, it looks likes this:
Won $100, lost $1000. (Still think it’s awesome?)
When a Forex bot reports on its performance, it likes to use the former. It reports how many successful trades it made, but seldom reveals the real risks. If you know how to analyse the numbers, it’s not an issue. But most beginners couldn’t tell a pip from a Charles Dickens novel, let alone interpret the statistics.
3. Bots Can Make Trading Harder, Not Easier
Some bots come with in-built analysis tools. These measure everything: Performance of odd currency pairs over variable periods, interest rate differentials over the years, general movements over time, the temperature of your chair based on your ass size, etc.
Except none of these fancy tools (which are used to justify the price) actually do anything. Imagine driving a car with 35,000 gauges on the dashboard, and trying to read every one before making a decision. Not only is it unnecessary, it’s confusing.
You don't need to be an experienced trader to use this! You just need a Masters in Finance.
Day trader Marcie Kwong wrote that:
“The benefit of Forex trading is that it’s SIMPLE. There are just four currency pairs*. Compared to the stock market, which has 80,000+ stocks, Forex is supposed to make choices easier. When you start over-analysing everything, you’ll just confuse yourself and become unable to make a decision. You may as well go to the stock market.”
*Most traders deal only with four currency pairs. Other combinations exist.
4. High Risk Defaults
Letting the bot bet your money is like inviting a blind stranger to drive your car. Fast. Default settings let the software make hair raising bets, and their algorithms may require it.
Forex bots have been known to risk 5-10% of your capital on a single trade. If you can swallow that, your other fun activity might involve scuba-diving with piranhas. Many Forex bots also have a very large stop loss, or no stop loss. In other words, the bot won’t close a trade until it accumulates a certain percentage of winning trades.
Many Forex bots are built to accumulate 99% winning trades. Until then, it will keep risking your money. And that’s a long time to be leaving your money out there.
We made the risk management settings more graphically intuitive.
5. They Are Not Less Stressful
Supposedly, a benefit of bots is that they remove the stress of trading. A bot turns your Forex account into a glorified jackpot machine: You put money in, and hope something comes out. If nothing does, no big deal. But one user denied this:
“It’s still the same. Even if you use a bot, you still will want to keep checking. You’ll still worry is it going up, is it going down, should I put a stop to it. There’s no difference.”
It comes with a stress reduction kit. Do you have duct tape and a wall?
Some of the traders suggested that, just maybe, a bot has an advantage because it won’t get emotional and panic. But in terms of overall stress or anxiety, a bot doesn’t help. If you’re the sort to worry about trading, you’ll still be downing Xanax at work, bot or no bot.
Yeah, sure it works. It transformed my money into less money.
What’s a Forex Bot?
A good way to rip-off amateur investors. Also, any sort of software designed to buy and sell on the foreign exchange, on the end-user’s account.
The earliest Forex bots were simple tools; they allowed Forex traders to automate spot transactions. In time, some traders realized that amateur investors were really impressed by this. Amateur investors are also impressed by crayon scribbles, so long as you put “J P Morgan” on it.
Some traders then started to write Forex programs (bots) that automatically bought and sold according to various algorithms. They claimed that, thanks to their super secret algorithms, any end user would be able to trade like an expert.
Of course, it's drafted by the CFO's son. Just take our word for it.
It took minutes for every third rate programmer and scam artist to jump on the bandwagon. Today, there are Forex bots coded by people who think the Euro is a German dance move. There is incredible diversity in the types and performance of Forex bots, and their costs range from free to several thousand dollars.
Forex bots have become unpopular, because:
There is no accountability
Amateurs can’t evaluate bot performance
Bots can make trading harder, not easier
Bots have high risk defaults
They are not less stressful
1. There is No Accountability
There’s no way to verify the seller’s claims, not when it comes to Forex bots. What, you’re going to check every last (fake) review?
Even if you manage to verify some of the reviews (I have no idea how), remember you don’t have statistics on the number of end-users. For all you know, the claim may feature one success storey out of 10,000 end-users. It’s the equivalent of casino or lottery advertising: Look at this one guy who won so much! Forget the thousand odd losers behind him!
Look, there are real testimonials. From bigbux 1, bigbix 2, bigbux 3…many different people.
Also, you have no idea who’s coding the Forex bot. It might be a veteran Forex trader / coder (true for bots like Forex Decimator). It might also be a part-time student, who agreed to do it for $.350 and a Mars bar.
Forex software may look complicated, but remember: If no attention is given to the algorithm, any code monkey can write a program with a bunch of links and spreadsheets, then off-load it at $400 a pop.
2. Amateurs Can’t Evaluate Bot Performance
When I asked which Forex bots can perform, I was e-mailed a list with more statistics than Enron ducking for cover. But apparently, this was the point the investors wanted to make. One of them (who wanted to remain anonymous) wrote:
“Is that making money? Most of the trades are profitable, but it’s exposed to outsized losses. You see very a nice picture, but you don’t understand that a single loss will wipe out the whole lot. The risk is so high that the small gains are not worth it.”
Of course I understand it. The purple line thinks the blue line is a ****, and they're separating.
A simplified example: It’s like playing a game of Blackjack where, every hand you win, you’ll make $10. But a single loss will cost you $1000. Even if you win 10 straight games in a row, a single loss will more than wipe out the profits. On paper, it looks like this:
10 wins, 1 loss. (Looks awesome right?)
In real money terms, it looks likes this:
Won $100, lost $1000. (Still think it’s awesome?)
When a Forex bot reports on its performance, it likes to use the former. It reports how many successful trades it made, but seldom reveals the real risks. If you know how to analyse the numbers, it’s not an issue. But most beginners couldn’t tell a pip from a Charles Dickens novel, let alone interpret the statistics.
3. Bots Can Make Trading Harder, Not Easier
Some bots come with in-built analysis tools. These measure everything: Performance of odd currency pairs over variable periods, interest rate differentials over the years, general movements over time, the temperature of your chair based on your ass size, etc.
Except none of these fancy tools (which are used to justify the price) actually do anything. Imagine driving a car with 35,000 gauges on the dashboard, and trying to read every one before making a decision. Not only is it unnecessary, it’s confusing.
You don't need to be an experienced trader to use this! You just need a Masters in Finance.
Day trader Marcie Kwong wrote that:
“The benefit of Forex trading is that it’s SIMPLE. There are just four currency pairs*. Compared to the stock market, which has 80,000+ stocks, Forex is supposed to make choices easier. When you start over-analysing everything, you’ll just confuse yourself and become unable to make a decision. You may as well go to the stock market.”
*Most traders deal only with four currency pairs. Other combinations exist.
4. High Risk Defaults
Letting the bot bet your money is like inviting a blind stranger to drive your car. Fast. Default settings let the software make hair raising bets, and their algorithms may require it.
Forex bots have been known to risk 5-10% of your capital on a single trade. If you can swallow that, your other fun activity might involve scuba-diving with piranhas. Many Forex bots also have a very large stop loss, or no stop loss. In other words, the bot won’t close a trade until it accumulates a certain percentage of winning trades.
Many Forex bots are built to accumulate 99% winning trades. Until then, it will keep risking your money. And that’s a long time to be leaving your money out there.
We made the risk management settings more graphically intuitive.
5. They Are Not Less Stressful
Supposedly, a benefit of bots is that they remove the stress of trading. A bot turns your Forex account into a glorified jackpot machine: You put money in, and hope something comes out. If nothing does, no big deal. But one user denied this:
“It’s still the same. Even if you use a bot, you still will want to keep checking. You’ll still worry is it going up, is it going down, should I put a stop to it. There’s no difference.”
It comes with a stress reduction kit. Do you have duct tape and a wall?
Some of the traders suggested that, just maybe, a bot has an advantage because it won’t get emotional and panic. But in terms of overall stress or anxiety, a bot doesn’t help. If you’re the sort to worry about trading, you’ll still be downing Xanax at work, bot or no bot.
