The Global forex market is regarded by many as the most profitable trading market in the world, with an average daily turnover of almost $5.1 trillion US dollars. Many traders use specialised software known as Expert Advisors in an attempt to generate consistent profits. These Expert Advisors or EAs are automated trading programs which continue to monitor and make a series of trading decisions on the trader’s behalf.
A legitimate Forex EA can do wonders for a trader, helping them to amass substantial profits in a considerably small period of time. However, there are several fake Expert Advisor Software that operates in the same market. Many strategists build such fraudulent EAS that perform special trading tricks to yield results. These results are of course, fake and are an attempt to entice gullible traders.
There are several ways one can spot a fraudulent or Scam Expert Advisor. For instance, taking a look at the developer’s website, checking the track record, or any suspicious promises that are “too good to be true”. Traders can check for certain signs to gauge the legitimacy of their selected EA.
These are mentioned in brief below.
- If trades are held open for an extended period of time: Certain EAs employ strategies which close trades in seconds, similar to scalping. They often produce favourable looking equity curves but lack any applicability in the real trading world.
- If Stop Loss is not used: EAs which do not include stop losses should be avoided as it cannot protect traders from losses.
- If trades are closed in a matter of seconds: Such EAs usually employ scalping strategies or something similar. They do not work on every trading account as they are sensitive to spread changes.
However, some Expert Advisors can appear legitimate but on closer inspection should be avoided as well. There are certain factors that can help traders make that distinction and to avoid them at all costs.
5 Signs of Fraudulent Expert Advisors to Avoid
- Avoiding Scalping Strategies: Expert Advisors, which work with scalping strategies are the most popular among traders. Most of these do not work in spite of producing good looking results, usually aided by a broker, or with the help of tricks such as delayed price feeds. Scalping strategies are sensitive towards spread changes and do not work with the majority of brokers out there. Sometimes, scalping strategies do not produce the same profitable results, even when working with the same broker.
- Avoiding EAs with Huge or no Stop-loss: Many EAs do not offer hard stop protections, such as closing trades, monitoring trades or disabling auto trading. Without any stop-loss, accounts can get burned in no time with all accounts getting closed or lost.
- Avoiding strategies with unusually high lot sizes: Many brokers offer unusually high lot sizes to clients to trade with. Many EAs start by offering 8 lots, eventually extending up to 1000 lot sizes. This is highly unlikely to be possible as it would require the trading account to be large to execute such trading positions. Backtests might deliver good looking equity curves but are not viable in reality. Extra precaution should thus be taken when dealing with EAs which double their lot sizes.
- Avoiding EA’s employing the Grid trading or Martingale trading Styles: EAs which use grid trading involve several buying and selling trades at the same time, in a hope to generate huge profits. However, numerous sell and buy stops can also expose a trader’s account to very high risk. EAs which work Martingale trading styles tend to increase lot sizes, sometimes, doubling and tripling them to recover from loss. Traders should thus stay away from EAs that increase the lot size till a profit level is reached.
- Avoiding Strategies that long open trades for long periods of time: EA’s which employ strategies involving holding trades for a long period should be avoided at all costs. Many EAs employ this strategy, ending up with high drawdown rates in spite of gaining profits. Some advertised EAs use trades that last up to 900 days in some cases. It seems illogical to hold on to a particular strategy for such a long timeframe, and thus such EAs should be avoided at all costs.
There are many forex trading strategies that rely completely on EAs and have proven to be successful tools to help traders amass fortunes. However, a poorly constructed or fraudulent EA can have quite the opposite result. In spite of this, many developers and sellers manipulate EA reports to project their product as good, to unsuspecting traders. The above signs would help traders spot EAs which show signs of being illegitimate or poorly constructed. Spotting these differences and choosing the right EA can be the difference between losing everything a trader has his/her account and amassing a fortune through consistent profits.