The Technology That has Changed Forex Trading

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In the digital age, we’re continuing to see the convergence of large scale and technology driven markets across the globe.

Take the overlap between online gambling and cryptocurrency, for example, which is disrupting the iGaming space and helping to create more transparent virtual casinos and remote sportsbooks.

Another example is the blurring of the lines between artificial intelligence (AI) and forex trading.

But how has AI changed the forex market in recent times, and can the use of this technology actually make you a better trader? Let’s find out!

A Closer Look at These Markets

If we take a look at the global AI market, for example, this entity achieved a total valuation of $136.55 billion at the end of 2022.

What’s more, the market is projected to grow at a compound annual growth rate (CAGR) of 37.3% between now and 2030, distinguishing it as one of the highest growth markets of its type during this period.

As for the forex market, this entity has enjoyed incremental growth since 2016, at least from the perspective of daily trading volumes.

More specifically, approximately $7.5 trillion is traded on a daily basis on the global forex market, up from $6.6 trillion in 2019 and $5.1 trillion in 2016.

Even though the market’s total valuation decreased nominally to $1.93 quadrillion in 2022 (from $2.409 quadrillion three years previously), the foreign exchange remains 30x the size of the US stock and bond markets combined at present.

Of course, forex trading is vulnerable to a number of macroeconomic factors, from supply and demand and interest rates to trade inflows and GDP. If you’re wondering ‘what is GDP?’, this refers to a countries’ gross domestic product and the total value of their economic output.

How Have the AI and Forex Markets Converged?

The melding of these two markets has been a gradual process, with AI largely used to automate aspects of FX trading and minimise the risks posed by human error and emotive trading.

Typically, AI systems are completely automated and utilise advanced algorithms to execute forex orders, according to the initial rules and parameters laid out in accordance with your strategy.

This strikes the ideal balance between human instinct (and strategic thinking) and AI, as the latter can be deployed to optimise order execution and take data-driven decisions in real-time. Similarly, it enables you to execute a relatively high volume of orders in a short period of time, which is particularly beneficial if you’re a day trader or scalper.

The development and application of AI has also improved the functionality of existing FX software and robots. AI and machine learning tools can also help rank stocks and offer scores based on factors like pricing and other technical indicators. With these features, traders can get valuable insights before choosing a forex, stock, or index trading platform.

Take forex arbitrage software, for example, which helps to identify temporary market and price inefficiencies that occur. These can include mispriced assets or short-term differences in broker prices, which can be leveraged by scalpers to generate incremental profits.

By leveraging AI’s machine learning and predictive analytical principles, this type of software has evolved to collate larger datasets and improve the accuracy of the information delivered to traders in real-time.

How Will AI Continue to Impact on Forex Trading?

Going forward (and as AI technology continues to evolve and improve), artificial intelligence will help to connect forex traders with increasingly advanced predictive analytical tools.

Make no mistake; these intuitive pieces of software will help to better inform your trades and access to data in the first place, in addition to optimising execution and minimising the risk of emotive or ill-judged trading.

Certainly, AI unlocks the potential of targeting large and unstructured data sources such as social media. More specifically, specific tools can collate and analyse unstructured datasets to identify viable patterns and trends pertaining to forex, making it much easier to make informed and profitable trades.

Such subtle improvements may also unlock higher and more sustainable profits over time, potentially impacting the statistic that some 70% of forex traders lose money on average each year.

The Last Word – How Does AI Actually Benefit Traders?

Currently, around 90% of active forex traders already use AI to execute orders and implement strategy.

This number is sure to increase incrementally and even further over time, as even retail traders begin to appreciate the value of AI and how it can positively impact both the development and implementation of trades.

As AI becomes increasingly sophisticated, it will inform your decision making even further, while drawing insight from a much broader and unstructured dataset that’s accessible and capable of being analysed in real-time.

This will continue to offer significant advantages to forex traders (and indeed investors who are active in alternative markets and asset classes),  especially those who have a decidedly short-term outlook and look to engage with FX strategies such as scalping and day trading.

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