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When we hear the word trading bots, the first thing that comes to our mind is how bots can do trading. Are they efficient enough to perform the trading tasks with precision? Are they even legally allowed to be used by traders?
Read this article for in-depth information about trading bots, how to use them, and how a trader can check if a bot is excellent or fake.
What Are Trading Bots?
Trading bots or trading expert advisors are computer programs created using coding languages such as Python, MQL, C++, Java, etc. The algorithms are developed as per the trading strategy, which analyzes the market and executes entry and exit positions.
In theory, traders can create the trading strategy and leave it to the trading bots to execute their trading plan. However, monitoring and small changes are essential in automated trading.
However, traders need months and years to develop trading bots, analysis, and hard work. Trading bots can outperform short-term manual trading but usually can not compete in long-term trading strategies and usually underperform manually trading. This thought is for debate.
Trading bots are suitable for traders who do not wish to sit all day, waiting for a better trading opportunity to arrive. They can leave it to the trading bots and utilize their time into something else, like upskilling themselves. Using the bot does not require the trader to have excessive trading skills. Bots are capable of performing both the analytical and execution parts of trading.
Are Trading Bots Legal?
Yes, trading bots are legal worldwide, and there is no financial regulation that does not allow trading bots implementation. However, brokers have the right to ban high-frequency trading bots or bots based on price quote manipulation, such as price latency arbitrage strategies.
Price latency arbitrage strategies based on internet delays can hurt brokers, and this practice is not allowed. However, traders can and should use arbitrage trading and exploit price discrepancies within different trading markets of similar or identical assets to make profits.
If we talk about regulations for Trading Bots, they are legal in almost every jurisdiction. This means that there is no such law regarding restricting the use of bots for trading. However, many brokers are still skeptical about trading bots and have strictly banned them.
Since there is no regulatory ban on trading bots, their use is legalized. It depends on the broker, whether they are using it or not. The number of brokers who are strictly against the bots is very, very rare. Trading bots are widely used in almost all leading trading platforms. Therefore, it is not very difficult to find a broker or a trading platform using trading bots.
It has always been a concern when it comes to the rightfulness of trading bots. The reason behind this is the presence of many scams in the trading market. There are many incidents where the bots have failed to perform as promised by the companies that sold them. Due to the poor execution of these trading bots, many traders became targets of irrecoverable losses.
At the time of selling, many companies lure the traders by showing fake results of their bots and offering money-back guarantees. Rare are the chances where the promises are fulfilled. Sometimes these scammers are nowhere to be found after successfully fooling people into buying their bots.
This doesn’t mean that every company in the market is selling illegitimate trading bots. However, they might be few, but some companies have potential trading bots that work as they promise. Though the best way to have a good trading bot is to create your own, it will require a robust trading system that has the potential to convert strategies into a program.
Creating a bot may require you to have programming knowledge or someone who can make it for you and is trustworthy. A trusted creator is a must as many of them end up selling the trading bot to others created on your strategy.
Are stock trading bots legal?
Yes, stocks trading bots are legal in the US and worldwide. Traders are encouraged to implement these strategies because bot trading increases brokers’ commissions and increases trading liquidity in the whole market. However, brokers have the right to ban bots based on price latency arbitrage strategies or any other price manipulation if manipulation is created to harm brokers.
Usually, strategies that use internet delay in price quotes can generate broker’s loss, so many brokers do not allow that kind of strategy.
Are crypto trading bots legal?
Yes, crypto trading bots are legal in the US and worldwide. Traders are encouraged to implement these strategies because crypto-bot trading increases brokers’ commission (more trades than manually trading) and increases trading liquidity in the whole crypto market. Crypto trading is specific because economic news and fundamental news almost do not impact price, and everything is based on supply and demand on the market.
However, crypto brokers can ban crypto bots based on price latency arbitrage strategies or any other price manipulation if manipulation is created to harm brokers.
All political and economic news placed in the information to move the crypto market up or down is just speculative and short-term lived. The Crypto market does not have a financial statement that can impact the crypto market price in the long term. For example, no interest rates, industrial production, or GDP can impact future costs like on ordinary national currencies!
Tips To Find Efficient Trading Bots
Many are scams out of all the trading bots available in the market. It is imperative to research the company that is selling the bots. It should be regulated, should be able to show you actual outcomes of the trading bots, and must have a history that is backed by good customer reviews. Any company that offers results that are too good to believe is a red flag.
The following are some of the tips to identify bots that have potential.
- Stay Away from Cheap Bots
If a seller tells you that the bot they are selling is very profitable, and at the same time, it is marked cheap, think about it. Why would someone sell a beneficial product at a very reasonable price? These companies lure many spontaneous buyers at the same time to sell the bots and flee with the money. Avoid bots that are priced at $100 or below. It is not like only expensive bots are legitimate, but excluding the cheaper ones will be a good start in your hunt for a fair trading bot.
- Trust the Real Numbers and Not the Words
Sugarcoated words and big promises about the trading bots cannot guarantee their rightfulness. The actual numbers, facts, and figures are genuine proof of a trading bot’s real potential. Therefore, only go for the companies that can show you everything about the bots, such as their performance in the live market, backtest results, annual returns, and more.
The charts and figures are enough to understand a trading bot’s prospects. The speech filled with terminology that you cannot understand may have been created to misguide or confuse you.
- Always Read Online Reviews
Anyone can easily find customer reviews about different trading bots. Some can be fake or paid reviews, and it is difficult to identify genuine ones. Whatever the company may claim, the real potential can only be determined through actual customer reviews. These authentic reviews are usually found on social media or forums. A reviewer with no history can be a paid reviewer. Honest reviewers typically have a record of genuine reviews.
- Be Aware of False Claims
Every trader is aware of the unpredictability of the trading market. Even if the trading bot is exceptionally potent, it still cannot promise higher returns, as you may have seen on some of the websites you have come across. Some companies display websites fancied by misleading graphics and pictures like big mansions, luxurious cars, or rain of cash and gold. Don’t get in the trap of these scammers, as nobody can promise you significant returns.
- Always Go for Regulated Companies
If you want to make sure you are not being scammed, always go for the company regulated by a respected regulatory body. You can check with the regulatory bodies to know if the company is genuinely held under them. Also, if the company is new, there will always be doubts surrounding its genuineness. Therefore, companies registered for more than five years, are regulated, and have customer reviews, are less likely to sell you fake trading bots.
How To Identify Fake Trading Bots?
Specific methods are used to create fake trading bots. The following is a list of some examples of these methods.
- Excessive Curve Fitting- Many sellers of trading bots only show positive results. They constantly adjust the trading rules that result in good curves. These companies may prepare reports that exclude the days when the strategy showed negative effects. They may also modify the positions of taking profits and stop-loss to derive presentable results.
- Modification with Backtest- Many fraud companies perform many random backtests until they derive the results that they can present to scam traders into buying their bots. They use arbitrary trading rules which do not generate justified results and are just a show to attract buyers. In the end, these bots do not work, and the traders lose.
Summary
Trading bots are legal, but some of their sellers are fake. Although many traders widely use these bots, the only question is where to find the simple bots. Considering the above points while searching for a trading bot will give you a heads-up. Since the users of trading bots surpass the number of manual traders, the requirement for these bots in the market has increased, leading to an increase in the number of scammers.
Remember the above points while hunting for bots. Also, trust your judgment and skills to find a legitimate trading bot. Though the bots cannot promise you that the trading results will be in your favor, they can assist you in completing your trading goals.
He is an expert in financial niche, long-term trading, and weekly technical levels.
The primary field of Igor's research is the application of machine learning in algorithmic trading.
Education: Computer Engineering and Ph.D. in machine learning.
Igor regularly publishes trading-related videos on the Fxigor Youtube channel.
To contact Igor write on:
igor@forex.in.rs
