2/6★Sometimes I borrow the power of ChatGPT, its 16
FX Automated Trading, EA developerReiwa’s Double E here.
Since last year, this series has been written with the aim of posting every day.
Probably we have continued for almost a year now!
If you read what I have written so far,
I am confident you will move closer to better EA operations.
And, there are times when I want to take a short break,
so here I will continue posts with the help of ChatGPT.
From time to time, I will post irregularly like my previous posts.
Will the increase in EA users affect the edge? A skeptical perspective
This time, I would like to discuss whether the increase in FX automated trading (EA) users affects that edge.
In the FX industry, it is sometimes said that “the edge of EAs diminishes” when many people start using EAs, but
I am somewhat skeptical about this.
Understanding how the edge of EA operation is influenced by the order-processing system of FX companies is the starting point for this discussion.
FX company order processing – the roles of LP and Interbank
First, a quick note on how FX companies (brokers) process orders.
FX companies may directly “take in” user orders, or they may route those orders to LPs (Liquidity Providers).
LPs, in turn, access the interbank market, where large orders are commonly processed in the interbank market.
Here, small retail orders of 1000 units or 10,000 units are not directly flowing to the LP, and
FX companies often consolidate these orders and place larger, aggregated orders to the LP in units such as 1 million currency units.
It is said that some LPs themselves trade with leverage of up to 100x.
In other words, individual EA orders do not flow straight to the interbank market as is;
since they are processed in an aggregated form by the FX company, the timing of an EA’s order does not necessarily coincide with the exact moment it affects the market, which is important.
Reasons why increasing EA users has little impact on edge
Next, here are reasons why more EA users may have little impact on the edge.
1. The impact of individual EA orders on the market is small
Orders from individual traders using EAs are often in units of 1000 or 10,000, and rarely flow directly into the interbank market. FX companies aggregate these orders and place them into the market in larger sizes, so one small order is unlikely to move the market significantly.
Also, the FX market itself is highly liquid; major currency pairs (USD/JPY, EUR/USD, etc.) see trillions of dollars of daily trading, so orders placed by individuals using EAs have almost no impact on the overall market.
2. Timing of orders is not synchronized
Even if more traders use EAs, not all EAs place orders at the same time. EAs use various logics and enter/exit under different conditions. Therefore, it is rare for orders to cluster at the same moment.
Even if multiple traders use the same logic, running on different brokers or in different environments can cause slight timing differences. Thus, all EAs entering at the same time to move the market is unlikely.
3. The roles of market makers and LPs
Some FX companies are market makers. They may take small retail orders in-house and not pass them to the interbank market. For market-maker type brokers, traders’ orders may not reflect in the market directly, so increasing EA users would hardly have a direct market impact.
Also, LPs aggregate a large number of orders and place them into the market, so the moment when EA’s small orders appear as LP orders into the market often does not align with the EA’s own trading timing.
4. The spread of automated trading evolves the whole industry
The spread of automated trading is an evolution of the entire industry and can work to the advantage of individual investors. Many EA developers entering the market and the development of various logics and methods will lead to new operating models and risk management approaches, contributing to market efficiency.
For example, if AI technology and big data-driven EAs emerge, more sophisticated trading becomes possible, and the edge of individual EAs may not diminish but even improve.
Conclusion – Skepticism about edge decline with more EA users
I am skeptical about the view that EA users increasing will reduce their edge.
Considering the size and liquidity of the FX market, the order-processing mechanisms of FX companies, and timing differences and different logics among EAs,
the possibility of significantly impacting the market just by increasing EA users is low.
Rather, the spread of automated trading will contribute to the industry’s overall development and create new opportunities for individual investors.
Using EAs is a very effective means for asset management going forward, and
I believe many more people will benefit from it in the future.
With that, happy trading life continues!
That’s all!
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MT4 EA (Expert Advisor) and Indicator installation procedures
https://www.gogojungle.co.jp/post/1/8212
※ GoGoJungle video version ※
Even at the beginning, not everything can be understood at once, and some people will definitely stumble.
I also stumbled many times at first, so take your time and you’ll be fine!
If you have questions, there is a “Contact Form,” so please use it!
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■ GoGoJungle “Contact Form”
https://www.gogojungle.co.jp/inquiry
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【How to choose an EA】
Now that you think you can operate an EA,
you may worry, “I don’t know which EA will win… I don’t want to lose….”
Therefore, Reiwa’s Double E has in the following series
“Backtests can indicate the probable quality of an EA”
The following articles were serialized.
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■ How to find a winning EA from backtests
https://www.gogojungle.co.jp/finance/navi/series/1714
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the backtest underpins it.
In most cases the backtest period is longer than the forward period, and
“whether the forward results were just luck” can be assessed by mastering backtest evaluation methods.
【How should EA risk management be done!?】
And no matter how excellent an EA you obtain,
if you neglect risk management in FX, you will fail.
So for EAs how should risk management be done?
The following article answers that question.
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■ “How to calculate EA risk management”
https://www.gogojungle.co.jp/finance/navi/articles/64703
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【EA operation mindset is also important】
And, to sustain EA operation long-term, an “EA operation mindset” is also important.
For those articles,
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12/30 Year-end and New Year SP!! EA All-in-One Course Part 3
https://www.gogojungle.co.jp/finance/navi/articles/80551
8/12 [Obon Holiday Special!] Now you too can be an EA master! “EA operation mindset”
https://www.gogojungle.co.jp/finance/navi/articles/72829
8/17 [Obon Holiday Special!] Now you too can be an EA master! “Notes during EA operation”
https://www.gogojungle.co.jp/finance/navi/articles/73797
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With that,
these reads are substantial and quite important,
so even if you cannot understand them immediately, be sure to skim through!
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【Reiwa’s Double E EA Listing】
https://www.gogojungle.co.jp/users/112481/products
Specifically, categorized EA listings for Reiwa’s Double E
https://www.gogojungle.co.jp/finance/navi/articles/67162
(Diversification by genre is essential when building a portfolio)
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【Reiwa’s Double E serialized articles】
■ EA Beginner’s Course
https://www.gogojungle.co.jp/finance/navi/series/1700
https://www.gogojungle.co.jp/finance/navi/articles/64703
https://www.gogojungle.co.jp/finance/navi/articles/65978
https://www.gogojungle.co.jp/finance/navi/articles/64738
https://www.gogojungle.co.jp/finance/navi/articles/65619
■ How to find a winning EA from backtestshttps://www.gogojungle.co.jp/finance/navi/series/1714
■ No sugarcoating! GoGoJungle challenges!
https://www.gogojungle.co.jp/finance/navi/series/1701
https://www.gogojungle.co.jp/finance/navi/articles/64723
■Reiwa’s Double E “Push-buy / Pull-back Selling” logic now publicly released!!
https://www.gogojungle.co.jp/finance/navi/articles/65010
https://www.gogojungle.co.jp/finance/navi/series/610
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【Reiwa’s Double E’s Philosophy】
Develop EA with solid methods,
