Are Forex Robots Legal and Legit?

Forex robots are trading programs that use computer code and algorithms to trade, rather than relying on an individual’s analytic capabilities, decision-making and expertise.

The robots allow traders to generate trading signals – indicators for action, instructing the trader to buy or sell a currency pair – or to make no trades at all. Robots can also be useful in the management of trades and the placing of orders; some can analyse charts in a way no human could.

Removal of the psychological element of trading can mean better success rates, but a forex robot is by no means a straightforward solution and much care should be taken when purchasing.

Many experienced traders suggest robots should not be used until a trader is proficient at manual trading, so that they are knowledgeable enough to distinguish between a well built robot and a scam.

Are Forex Robots Legal?

Forex robots are legal, but legal doesn’t necessarily mean reliable and legitimate. Certain countries do not support the use of forex robots, and there are also a handful of brokers who frown upon this method of trading.

The nervousness surrounding robots stems from the marketplace being littered with scams; it is not highly regulated. Companies can sell useless robots and traders often have no comeback where the law is concerned.

Automated robots can be bought online legally, but it is not unusual for companies to disappear as quickly as they spring up. Sellers often promote a money-back guarantee with the sale of a robot, but that guarantee vanishes with them, leaving the trader out of pocket.

Out of the many companies selling forex robots, few have legitimate software for properly assessing opportunity and risk. Many of them use tactical visual representations to trick the trader into thinking the robot on offer will generate huge profits.

Common tactics include:

• Picking the best backtest (sometimes called data-mining bias) – Backtesting is the process through which a trader uses historical data to assess the viability of a piece of software, model or strategy. Backtesting allows the trader to simulate market conditions and watch how things would have played out. Companies looking for a quick sale of an illegitimate robot may look through hundreds of backtests and cherry-pick one, which they then present to the trader as being the likely outcome if the robot is used.
• Curve fitting – The term ‘curve fitting’ is used in several different ways in this industry. It can refer to the adjusting of a system to, quite literally, fit in with the curve. Companies selling illegitimate forex robots may adjust parameters when backtesting, so that if, for example, a backtest shows a big loss being incurred three out of four Thursday afternoons in a month, the robot will be coded to stop trading at midday on a Thursday. Therefore, when the seller runs the code again, the data presented to the trader will look flawless.
• Showing impressive win rates through scalping strategies – Some companies can show impressive win rates, but the likelihood is that the robot trades for small profits using a scalping (making profit from small price changes) trading style. The danger with a scalping strategy is that it only takes one large loss or a few smaller losses (due to conditions in the market changing) to wipe out all profits.
• Using unregulated brokers – Often, robots that show very good results are also linked to brokers that are not regulated. The likelihood is that if you start trading using an illegitimate robot, your spread (the cost of a trade – a bit like a commission) will be far wider than those related to the results you were shown before purchasing, which will eat into your profits.

Things to Consider

Trading with the best forex robot on the market is still precarious. The majority of robots only trade within a narrow range, making a set amount of pips (this stands for ‘point in percentage’ – the measure of change in a currency pair) inside that range. They will often make profits, but those profits can easily be wiped out if a breakout occurs.

If you are looking to purchase a forex robot, consider the following:

• It is illegal to sell a robot that doesn’t work and it is illegal for a seller to exaggerate the profitability of the robot they are trying to sell. However, it is not illegal for you to use one of these illegitimate robots, and you have no come back if you make a loss (the seller can’t be held responsible for your losses).
• It is common for a broker to refuse a trader the right to use a robot, because of concerns it could ruin their account.
• A forex robot can be programmed to trade 24 hours a day, and that means having access to your money 24 hours a day. You can’t be watching all the time, which means your robot can trade without you – risky if you happen to have purchased an illegitimate robot. It is easy to lose money.
• It is possible to develop your own robot, which can be a safer alternative than placing your trust with a third party.

How to Tell If a Forex Robot Isn’t Legit

If it seems too good to be true, it probably is; effective forex robots aren’t cheap. Here are some tips on how to tell if your forex robot isn’t legal/legit:

• It is free or cheap. If you’re surprised at how reasonably priced a forex robot is, move on. The likelihood is that it is not worthy of the money you are considering paying for it, and you won’t break even when it comes to the profit you will make off the back of it.
• Grand claims are being made. If a company is guaranteeing big profits with minimal financial risk, promising zero spreads or making other grand statements, suspicions should be raised. There is no such thing as guaranteed profit where forex robots are concerned, and a legitimate forex robot will be costly and won’t feature bargaining additions, so this kind of marketing speak should immediately set off alarm bells.
• The company boasts new, advanced technology. Remember, there are no guarantees with a forex robot, no matter how much the company promises. If a company had developed groundbreaking new technology to win big, they would earn more from using the robot themselves to trade, rather than selling the technology.
• The marketing speak is trying to win you over. Watch out for marketing messages which sell you the dream of what the money you make could buy you. A genuine company should be able to show you the numbers that prove what the robot is capable of, rather than using flamboyant language promoting the benefits of big profits.
• A virus checker alerts you to a problem. A virus checker may alert you to potential issues with the software, which should be a red flag when it comes to establishing whether or not a company is legitimate. The likelihood is that to do this you will have already purchased the software, but you will at least know not to trust the robot with your money.
• The company does not provide proof of its legitimacy. One of the most useful ways to quickly ascertain whether or not a company is legitimate is to find out whether they are registered with a regulatory authority. A genuine company will always provide proof that they are regulated.

How to Pick a Legitimate Forex Robot Seller

If everything seems legitimate and you’re close to purchasing your forex robot, there are still some simple checks you can make to ensure the company is legitimate:

• Contact a regulatory authority (Financial Conduct Authority if you’re UK-based) and see if they will provide you with a list of companies that are regulated (and details of any cases currently open against regulated companies).
• UK-based traders can use the FCA’s Financial Services Register tool to search for a firm.
• Visit whois.net to check whether or not the company’s domain is registered in the same name as the company, and when the domain was set up.
• Google key terms like: ‘unregulated broker forex robot’ to get lists of companies that have been exposed for being illegitimate.
• Forexfraud.com has a list of brokers to avoid – these aren’t robot specific, but could still flag a company you are considering buying from.

Final Thoughts

Always keep in mind that if a system existed that made consistently profitable trades, no one would want to share it with anyone else.

Robots can be a useful way to trade but their success is limited, and getting anything less than the very best, legitimate robot is likely to result in disappointment.

WikiJob does not provide tax, investment or financial services and advice. The information is being presented without consideration of the investment objectives, risk tolerance or financial circumstances of any specific investor and might not be suitable for all investors. Past performance is not indicative of future results. Investing involves risk including the possible loss of principal.