Building versus Buying an EA for Automated Forex Trading

Building versus Buying an EA for Automated Trading

The popularity and benefits of automated forex trading has created a huge market for EAs (expert advisors) and automated trading strategies. MetaTrader itself has a marketplace where you can buy hundreds of EAs, and numerous developers sell algorithmic trading strategies independently. Does this mean it’s best to buy an automated trading strategy, or build one yourself? In this post we will weigh up the pros and cons of both options.

The Learning Curve
Obviously, the first consideration is the time and skill required to build your own algorithmic trading strategy. The native programming languages for platforms like MetaTrader and NinjaTrader have shortened the learning process for people without a background in programming. However, there is more to developing a successful automated strategy than just the programming part – something many traders choose to outsource anyway. To turn an idea into a profitable strategy requires time and an understanding of the process of creating rules, back testing and optimization.

But, it’s important to remember that many, if not most EAs, that can be bought don’t actually perform very well. So, even if you don’t have to put in the time to develop your own strategy, it will take time to analyse and select strategies that are worth paying money for. This will be a lot easier if you know how to build and test your own forex trading strategy.

An automated forex trading strategy that performs well is probably going to sell well. It’s also likely to be copied, and in time developers are likely to come upon strategies with very similar rules. This means that over time, increasing numbers of traders will be using identical or similar strategies, and eventually the edge will be eroded.

If you develop your own strategy there is far less chance that the trades you enter will be crowded, so the strategy will probably be profitable for longer. Eventually other developers may develop very similar strategies, but you will have an edge for longer with your own strategy.

While it goes without saying that developing your own strategy will cheaper in the short term, the cost of a buying a strategy is just one of several costs that needs to be taken into account. The cost of a strategy needs to be weighed up in the context of the profit as well as the commission and other trading costs that it will generate. Good strategies are worth paying for if they have a reasonable chance of being profitable for long enough to generate a good return.

Knowing Your System
If you develop your own automated trading strategy you are more likely to know its weak points, and when intervention may be required. You will also know when it is really broken rather than just experiencing a drawdown. This is one of the greatest advantages to developing your own system.

As you can see there are a number of advantages and disadvantages to taking either route. The best approach is actually to do both. Developing and trading your own automated trading strategy will give you a much better understanding of algorithmic trading. But if you can buy a profitable strategy there is no reason not to.

Successful algorithmic trading usually requires a portfolio of strategies. Trading some that you have purchased and some that you have developed yourself will give you a diversified mix of tools for different types of markets. By doing both you will have a more robust portfolio in the long run, and develop better skills to manage your strategies.

If you want to automate your forex trading strategy feel free to contact us. Nordman Algorithms specializes in MQL4/MQL5 programming services, developing EAs and Custom Indicators for MetaTrader 4 and MetaTrader 5 trading platforms. All you need is an idea and we can give you a time estimate and quote to turn it into a MT4/MT5 Expert Advisor or Indicator.