What is Expert Advisor or EA in forex trading?

What is Expert Advisor or EA in forex trading?

Financial Times reported that a former trading software expert at Goldman Sachs, Sergey Aleynikov has been arrested on suspicion of unauthorized downloading of sophisticated trading software codes after he left Goldman to join another company.

Mr Aleynikov maintains his innocence and is free on $750,000 bail. An FBI affidivat claimed Mr Aleynikov’s pay of $400,000 is expected to triple after he joined the new company…… wow that is a lot of money man and highlights the importance of the role of trading software that has existed in and used by some companies.

Until recently not many people are aware that sophisticated trading software are being used by big companies to trade the markets, removing human element and more importantly, removing human emotions, and in the process making hundreds of millions of dollars for the company.

I believe in the next 10 years, more people, including retailers will have the opportunity to allocate some of the funds in high risk high return investment options such as auto trading, as one of the means to diversify their portfolio investment.

One of the areas which caught my attention lately is auto trading in the forex market. So what is auto trading or EA ?

Auto trading or expert advisor (EA) is basically transforming manual trading strategies into computer codes and let the computer trade on behalf of the humans. The biggest attraction is that it removes completely human monitoring and human emotions…….so one can be less stressful and have more free time, that is assuming the EA can make money consistently.

EA has been made available to small traders or investors due to the success of the MT4 platform. I have been doing some research into this area and here are some of the things you should look out for before deciding if you want to BUY an EA from someone :

1. ask them if they are willing to show live demo account
very often, we will see someone bragging his EA can generate >90% success rate over the past 2 years based on historical data. But once you use the EA in real world, the outcome may not be what they say because :
a. they can test the EA on various settings and only show you the best performing model and not telling you about the worst performance
b. they can show you a fake historical statement
so i would suggest you requesting a LIVE demo account and monitor the EA for at least 1 to 2 months LIVE.
c. some EA may do well for 1 to 2 months but not consistent so better monitor longer
d. some EA performs well only when the spread (commission) for the forex pairs being traded are tight eg 1 to 2 pips but once we use it on forex pairs where the spread is high eg 4 pips it cannot perform well.

2. some EA providers will ask you to deposit your money into their account - this is extremely high risk as they can just run away (this has happened many times before)
to reduce such risk, only deal with EA provider where the money is parked under your own name and the EA is then put into your own account to trade

thats all i have to share for now

cheers
rooney

p/s : checkout the performance of a live demo account here : http://www.mojostock.com/metatrader4stats-smartea.php

disclaimer : forex trading is highly risky, you may lose all your capital. all information mentioned here are solely for education purposes only.