Robot Performance And The Forex Spread

June 2, 2012 by Rudolf Boquiren  
Filed under Investment

The size of a forex spread has an effect on robot performance. Most robots are short-term traders and perform better on a tighter interval. The client profits from small pip movements and receives steady returns. This minimizes risk, although it also minimizes windfalls.

All currencies are paired in a trade. The base currency, usually, is the US dollar. The counter currency is what is being traded against the dollar. Each country’s currency has a unique symbol. For example, USD/JPY stands for the United States’ dollar and Japan’s yen.

Each trading pair lists two different prices. The first is called the bid price. This is the price at which the investor will buy the base currency in exchange for the counter currency. The second is called the ask price. This is the price at which the investor will sell base currency to acquire counter currency. The best robots execute a trade when they anticipate that the currency they are buying will exceed the value of the currency they are selling.

The difference between the ask price and the bid price is called a spread. Both prices are always five digits long (e. G., 123.45). The last digit is called a pip. If the USD/JPY pair has a bid price of 123.45 and an ask price of 123.50, the difference is called a five-pip spread. Investors must recoup at least five pips when they sell the currency to break even.

Very few brokers charge an overt commission for a forex trade. Instead, they add onto each spread. They may trade at a five-pip instead of a four-pip and then keep the extra pip as compensation. Brokers add extra pips depending on how much they want to make on each trade. Take add-ons into consideration when choosing a broker.

Different robots perform differently. Most robots work best with particular currency pairs, although they can analyze and trade any pair. Also, different robots are comfortable with different spreads. When a robot trades outside of its typical zone, it can negatively impact performance.

Overall, robots do best with a tight spread. This is because most robots are short-term traders. They are not programmed to ride out large and volatile spreads. With small spreads, they deliver consistent results.

Robot performance is absolutely impacted by the size of a forex spread. The size of spreads should also be considered when choosing a broker. A broker who widens the spreads makes a large cut of an investor’s profits. The wider spreads also negatively impact the robots.

The forex spread can make the difference between success and failure for a forex robot. Learn more by visiting the Forex Robot Examiner EA testing website of Rudolf Boquiren.

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