AI trading due diligence: a working checklist

Ask: what live, third-party-verifiable performance exists, for how long, and at what capital size? Evidence: broker statements or a verified Myfxbook/FX Blue style record with investor access, covering at least a full range of market conditions. Alarming: backtests presented as performance, screenshots without account identifiers, or live records shorter than the period being marketed.

A backtest is a hypothesis, not a record. Ask whether results are net of spreads, commissions, swaps and slippage, and whether parameters were chosen after seeing the tested data.

Ask: what data was used to develop the strategy, and what data was held out? Evidence: a clear separation of in-sample and out-of-sample periods, walk-forward or paper-trading results dated before the fact. Alarming: one continuous curve described as 'tested', re-optimisation after every drawdown, or refusal to name the tested period.

Ask how many strategy variants were tried and discarded. A system that survived from among thousands of attempts is weaker evidence than it looks; the discarded variants should be counted.

Ask: what is the maximum historical drawdown, on what position sizing, and what mechanism limits losses? Evidence: drawdown measured on the traded level, stated leverage and margin assumptions, and the liquidation threshold the broker would act at. Alarming: drawdown quoted without the sizing it assumes, or risk described only in words such as 'controlled' or 'managed'.

Ask what happens in a price gap: whether forced liquidation can fail, and whether losses can exceed the deposit. A provider who cannot answer precisely has not thought about the scenario that matters most.

Ask: what is the complete cost per year, at different performance levels? Evidence: management and performance fees, entry and exit costs, and the broker compensation the provider receives for volume or spread. Alarming: a single headline fee, costs that depend on undefined 'market conditions', or no disclosure of broker-side compensation.

Incentives follow fees. A provider paid on performance holds an option on your capital; a provider paid by the broker for volume is incentivised toward turnover. Ask directly how each incentive is limited.

Ask: where does the money sit, who can withdraw it, and what happens if the provider disappears? Evidence: custody at a regulated broker in your own name, PAMM or similar allocation with documented withdrawal terms, and an answer for manager failure. Alarming: transfers to the provider's own account, crypto wallets, or pressure to fund quickly.

Ask how the system behaves in unusual markets: what it did on specific historical stress days, and what circuit breakers exist.

Any of the following is grounds to walk away: guaranteed or 'target' returns; risk-free or arbitrage claims with no capital at risk; refusal to identify the broker or the custody arrangement; performance quoted only in pips or percentages with no money amounts; urgency framed as limited allocation.

The purpose of this checklist is not to disqualify every provider; it is to find the ones whose answers survive asking. Use it on this site too: where our own answers are incomplete, treat that as a finding rather than an endorsement.