Can You Use A Trading Bot to Pass Prop Firm Challenges

  • April 13, 2023
Can I use a trading bot to pass a prop firm challenge

Funded trading accounts have become incredibly popular over the last few years, with thousands of retail traders becoming funded every month. Alongside prop firms gaining popularity, automated forex trading and trading bots have also gained a huge amount of popularity over the last few years. Many traders either have a bot in their portfolio, or are at least dabbling with creating one.

In this article, we’re going to look at how trading bots can be used with a prop firm trading account, the benefits, the drawbacks and how to build your own bot! So, let’s get into it…

Using An Automated Trading Bot To Pass A Prop Firm Challenge

First, it’s important to realise that many prop firms, including Lux Trading, allow traders to use bots in their trading challenges. Typically, the only stipulation is the fact this needs to be your own trading bot, or you have access to the source code. Without this, the trader has no idea what the bot is doing or how it can manage risk – which will lead to many funded accounts blown. Bots have been successfully used to obtain funded accounts and continue trading on those accounts after challenges have been completed. In all honesty, bots can get some great results and a portfolio of well balanced bots can outperform most manual traders due to their lack of human error, emotion and ability to trade the strategy flawlessly for 24 hours a day.  

The Benefits Of Using A Trading Bot On A Funded Trading Account

It may come as no surprise that there is a considerable range of benefits from using a trading bot on your funded account. Let’s take a look at some of them…

 1. No Human Emotion

The largest benefit, undoubtedly, is the fact the trading bot can just execute your trading parameters with no nuance, no emotion and no errors. Humans typically make a huge number of errors when trading and let bias shape many of their trades – resulting in worse trading returns. A bot has no emotions and will just execute the exact same trade over and over again until you turn it off. This is a huge value add to most traders.

 2. Back testing Functionality

 With a trading bot, or portfolio of trading bots, you can easily run a back test over a period of years in minutes. This is hugely valuable as you will know for certain whether your strategy is actually profitable or whether you were playing with luck when you had your winning streak. Not only that, you’re going to have all of your numbers at hand in terms of drawdown and maximum losses over the last few years. This can help you frame your risk management strategy and give yourself a better chance of not losing your funded account by violating the risk parameters.

3. Ability To Never Miss A Trade

Life and jobs get in the way for traders, and so does sleep! With a trading bot, it will run whenever you want it to run, meaning you’ll never miss a profitable trade. With that being said, I’d recommend having a think about it only trading during London and New York sessions as the spreads and lack of liquidity may be a problem during Asian hours.

4. Ability To Create A Portfolio

A human trader will struggle to put 5 strategies on the go at any one time. However, this is easy for a bot to handle. The majority of profitable automated traders will have anywhere between 5 and 10 bots in their portfolio, resulting in less risk and more consistent returns in the market than if you were trading just the 1 strategy endlessly.

The Drawbacks Of Using A Trading Bot On A Funded Trading Account

Although there are certainly more positives than negatives, there are a few negatives when it comes to using trading bots that need to be considered.

1. You Need To Purchase A VPS

 To achieve consistency, you’re going to need to run your bot on some kind of dedicated server, typically a VPS. Although this is tedious, the cost is only going to be around £20 per month for a VPS that can handle 1-5 trading bots, so it’s not too expensive!

 2. Bots Ignore Fundamentals & News Releases

Your bot will be completely oblivious to any fundamental impacts, news releases and anything else that could affect the price of currency. This could be a blessing or a curse, depending on which way the market moves, of course. Some traders monitor the news and turn their bots off during extreme volatility, so that may be an option for you to consider.

 3. Your Bot May Not Work

 It’s possible that you or the developer has built the bot badly, and it’s taking invalid trades. This should be ironed out during the build process, but it’s worth bearing in mind. If you’re taking invalid trades, it’s possible that your returns won’t mirror what you expected at all.

Building Your Forex Trading Bot

So, let’s assume you have a profitable trading strategy manually, and you’re looking to automate the strategy. Until more recently, this would involve paying a developer thousands of dollars to create an EA for you that runs on your MT4 or MT5. Although an EA is still the easiest way to get this done, you now have more options at your fingertips, and you can actually build a bot for free!

Precursor – Creating Rules

 If you want to code a trading bot, you’re going to need to create rules for your strategy. If you need a candlestick to look a certain way, you’ll need to think about that in relation to the surrounding candles, etc. It can take weeks to fine tune your rule set before looking at actually coding the bot, but once done, this will save a huge number of headaches when back testing!

Using No-Code

There are now some great ‘no-code’ tools available for creating trading bots. These tools allow you to drag and drop various components and parameters into a workflow, which the bot will execute. Once created, you’ll export the MQL4 file and all supporting files, upload to MT4, and you’ll have a fully functioning trading bot. I’ve personally created a range of simple trading bots using this method, and it’s usually straightforward to do!

FxDreema is the best tool on the market for this right now and has a free version for traders to build simple workflows.

Paying A Developer

There are literally hundreds of high-quality developers online that can easily create your bot for you. The price range for this will obviously vary hugely depending on your requirements. For example, a simple timed trading bot with easy risk management functionality may set you back £200. On the flip side, a more complex trading bot could cost £5000 to develop fully. This is often quite a long process as there are many iterations and testing required from you as the developers are working on the bot. For simple bots, I’d recommend using No-Code to get this done yourself. For more complex bots, perhaps consult a developer if you have the capital available. In terms of where you’d find these developers, personally I’ve used Freelancer for any projects!

In Summary – Can You Use A Trading Bot To Get Funded?

So, in conclusion, you can very much use a trading bot to get a funded account, and it’s actually very worth looking into! Many of our Elite Traders have used bots in their trading, either to fully or partially automate their trading strategies.  

Give it a try yourself!

 Looking for funding? Work with Lux Trading Firm now!