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Expert Advisors

An Expert Advisor, also called EA, is a program which has been designed for or been developed within the trading platform MetaTrader 4.

In principal, every user can develop his own EAs which will trade based on the programmed trading strategy, even automatically depending on the set up. A great number of Expert Advisors - discussed and tested in various forums- are offered at no cost in the internet. Often the "Open Source" concept still prevails which means the source code is disclosed and can be used and modified by the traders at their discretion.

On the other side, commercial Expert Advisors are closed systems, the source code cannot be accessed by the trader. For these cases the buyer needs to rely on the seller's information regarding the programmed trading system as long as any information is disclosed at all. Frequently the strategy used in the application is only outlined and not described in detail in order to suppress any imitation (scam). Therefore, you need to gather complete information about the potential Expert Advisor before a purchase, if you are interested in new EAs, please wait for first user feedbacks and live results.

Many Expert Advisor providers have moved to a stronger protection of their source code. The simplest method is the entry of a registration number (frequently the number of the receipt), but sometimes a registration of a trading account on the provider's website or the installation of additional programs like Forex Code Guard is required.

Basically you should have understood the Expert Advisor's input parameters and trading strategy before its use, regardless whether you use a purchased version or an EA freely available in the internet.

It is recommended to carry out extended Backtesting on the EA and to try it on a demo account for a longer period of time, even if the results cannot be transferred to a live account offhand.

You may consider running the Expert Advisor on a Virtual Private Server in order to exploit its full potential.

Risk-Reward-Ratio

The Risk-Reward-ratio indicates the risk appetite of an Expert Advisor. An Expert Advisor working with a take profit limit of 5 pips and a stop loss limit of 40 pips has a Risk-Reward-Ratio of 8:1 and will need a hit ratio of at least 89% in order to prove profitable in the long run.

Some EAs offered in the market - in particular Scalpers - show a Risk-Reward-Ratio of 15:1 and more, which indicates a strategy prepared to take risks. A high Risk-Reward-Ratio does not necessarily mean that the respective EA won't result in good profits. An Expert Advisor with a hit ratio of 95% will even be profitable at a Risk-Reward-Ratio of 15:1, but as soon as the hit rate drops to 93%, possibly due to a changed market situation, the EA will incur a loss.

Many current Expert Advisors are also equipped with active risk management which allows a permanent monitoring of the open position and a closing of the position even before reaching the stop loss limit if needed, thus considerably reducing the actual Risk-Reward-Ratio in parts.

Risk per Trade

Most Expert Advisors permit the entry of a maximum risk which must not exceeded by individual transactions, but the underlying calculation methods may deviate strongly. The base approach relates the indicated percentage merely to the current credit balance on the account as explained in the following example:

Risk: 10%
Balance: EUR 1.000
Leverage: 500:1
Currency pair: EUR/USD
Rate: 1,50

In this case a lot equals EUR 100,000, at a leverage of 500:1 a margin of EUR 200 will be required to trade this lot. Should now 10% of the balance - which is EUR 100 - be put at risk, the EA would trade 0.5 lots. Even if the EA considers open trades and allows an available margin instead the credit balance, this would still be a quite daring approach, as the stop limit needs to be observed for an adequate risk evaluation.

A pip has a countervalue of USD 0.5 in 0.5 lots EUR/USD. If the Expert Advisor works with a stop loss limit of 300 pits, this would result in a maximum loss of USD 1.500 for this trade, in other words, the account would be erased.

However, if the stop loss limit is incorporated, the calculation will change as follows: 1 pips equals USD 10 in 1 lot EUR/USD, the loss potential at a stop loss limit of 300 pips would be USD 3,000 or EUR 2,000 respectively. This results in an order size of 0.05 lots, as still only EUR 100 should be put at risk.

Expert Advisors, MetaTrader 4 installations and accounts

In theory it is possible to operate an unlimited number of Expert Advisors within a MetaTrader 4 installation. For this very reason almost all EAs contain a Magic Number which allows each Expert Advisor to monitor its "own" orders. Usually Magic Numbers have to be assigned to each chart individually, especially if the EA is supposed to trade a currency pair in several charts simultaneously like for the testing of different settings. Some modern EAs are capable to keep apart the orders for the individual currency pairs automatically, in this case a Magic Number needs to be entered only when really two charts of a currency pair are being used.

Because of its technical design MetraTrader 4 is not able to process several trades simultaneously. This is the reason why it may occur that two or more traders reach the Trade Contex at the same time if a number of EAs are active in several charts or possibly even use several trading strategies for each chart. If this happens, then only the first order will be executed, a waiting list or similar does not exist. It depends on the processing of the Expert Advisor triggering the rejected order whether it will placed once more at a later time. The impact of this issue can be reduced by installing MetaTrader 4 several times or by copying an existing installation. It is possible to log into the same account from each of these installations and to spread the charts equally across all installations.

Furthermore, the account balance or the margin respectively needs to be accounted for when operating several Expert Advisors within one single account. Individual EAs usually factor in the available account balance with their money management, but they do not observe the behaviour of other Expert Advisors. A risk per trade of 5% may acceptable for an EA with 4 trading strategies, but this looks entirely different for 3 EAs which are using 15 trading strategies on the same account, as in this case the accumulated risk amounts to 75%. Therefore it can happen that due to the large number of open orders the margin will be consumed completely leading to a forced closure of different positions, although each individual order remains within its limit.

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