While I am far more comfortable using an algorithmic trading bot than doing the trading myself, it doesn’t mean it is always easy. Most of the challenges are the same ones any trader experiences during the normal course of his/her business. Some of them are unique.
- Slow Internet Where The Bot Lives: When using an algorithmic trading bot, it is best to use a virtual private server. (VPS) Ideally, you will want to have a VPS that is located close to the trading activity you are engaging in. Even when you make all of the right decisions with your VPS, the server and the bot that lives on it will still not be able to communicate quickly enough all the time. You may sometimes miss a trade or fail to maximize the profit on a trade. This has not happened to me often, but in my short 6 months doing algo-trading, it has happened once. If you accept it, you won’t stress as much when you experience it.
- Brokers: When using an algo-trading bot, you are going to have to rely on an international broker. Brokers based in the US do not provide the necessary level of margin to allow the algorithmic trading to effectively take place. If you are committed to using a bot to trade FOREX, you really have no other choice. Then, when you accept you will have to use an international broker, you will have to find a trusted broker that will take US clients. And, if that isn’t enough stress, you have to transfer funds to this broker using a wire or crypto or some other method. If this transfer takes more than a couple of days, you will feel certain you have been “taken.” Yes, nearly everyone experiences a fear of losing their money as they set up their first bot.
- Bots can be touchy: While not all of my bots are as touchy, they do need to be coddled a little. I have had multiple occassions where I tried to find a faster server for the algo-trading bot to login into. One of my FOREX bots thinks it is being restarted when I do this. It creates a number of new trades and “forgets” the other trades. “Forgets” is my way of saying the previous trades are orphans. The bot doesn’t know about them anymore. It only manages the trades that existed after it “woke up” again. You can close all of the orphans immediately, OR you can wait and close them when they are in the black. You hope they become positive soon.
- Costs: Using an algorithmic trading bot does have upfront and monthly expenses. The upfront costs can start at $3,000 and got to $10,000 or more. Some of the companies have multiple bots in their portfolio. They may provide access to all of their bots for one price. I have seen bundled packages of $10,000 and up. Once the bot is purchased and installed on a VPS (The VPS price can be free if broker provided to approximately $40/month.), most companies charge a monthly software fee. Not all of the bot-providers do. The companies who charge a monthly fee either charge a set amount regardless of the amount of money in your account, or they graduate the cost based on account size.
