The Automation Revolution
The Forex trading industry has seen a massive impact of algorithmic automation on various levels. Automation has transformed what was a transaction-intensive, back-office operation into something that is now a fully automated back-office operation.Automated algorithmic trading has completely transformed the trading landscape. Most traders use automated trading to some extent without realizing it. The reason for this is that most trading platforms now offer a variety of order types that can be pre-set and triggered automatically when conditions are met. Stop-loss and Take-profit orders can now be placed almost entirely automatically without any trade intervention.
Forex Algorithmic Trading Strategies
The following are some common forex algorithmic trading strategies and some additional ways of using algorithms to achieve automated trading.- Statistical — Statistical refers to an algorithmic strategy that analyzes historical data for trading opportunities based on statistical analysis. By comparing historical trends with current market data and trends, profitable trading opportunities can then be identified.
- Auto-Hedging — As the name implies, it is a strategy which performs hedging automatically. Essentially, once a trade is placed, a second trade is executed to hedge the first trade. The main aim is to reduce a trader’s exposure to risk. As a result, it could help balance a portfolio’s exposure across different currency pairs.
- Forex scalping — The Forex scalping strategy involves traders trying to capitalize on small price changes which may occur within a few seconds. The use of algorithms might be particularly appropriate for this type of trading as it involves opening a large number of trades per day, whereas manual trading may result in a slower execution time.
- Direct market access — This refers to the optimal speeds and lower prices at which algorithmic traders can access and connect to multiple trading platforms. It is typically used by buy-side firms. DMA allows buy-side firms to trade without relying on market makers and broker-dealers.
- Trend strategy — Forex trend trading strategy involves trading based on the current price trend — i.e. buying when the asset is in an uptrend or selling when the asset is in a downward trend.
- Momentum trading — Momentum trading is another popular short-term Forex trading strategy. The general rule for trend traders is to buy low and sell high, whereas momentum traders “buy high and sell higher”. For example, EUR/USD is approaching a significant level of resistance at 1.20, If the pair breaks through that level, momentum will build as traders anticipate the trend will continue.
- News trading — You may have noticed that during central bank meetings and major news releases, volatility jumps significantly and prices move abruptly. During this time, very little manual trading occurs as most institutional traders use algorithms for such events.
Technological Advances in the Forex trading industry
The emergence of new platforms for cross-border payments and commodities trading has made Forex trading an increasingly democratic market today. This boosted trading on forex markets to $6.6trn a day by 2019, according to research by the Bank for International Settlements (BIS). Three years earlier, this was just $5.1trn per day. All of this occurs in a period of record-breaking fintech activity.According to KPMG's Pulse of Fintech report, 2021 was a "remarkable year" for the Forex trading sector, which saw strong investment and a record number of deals across all regions. Visa's $929 million deal for foreign exchange payments platform CurrencyCloud announced last summer is an example of this.
Some of the most significant technological advances in the Forex trading industry were as follows:
1. Facilitating Seamless Access to Forex Market
Technology provides two other means of making Forex trading more inclusive as well. The first one, the accessibility, and the second one is the ease of gaining access to information and data.Vito Henjoto, an avid chartist, claimed that technology is empowering traders by providing them with greater freedom. The internet makes it possible for traders to monitor their trades from anywhere. These features provide traders with greater freedom, mobility, and flexibility. And of course, there is no denying the wealth of information available to traders today thanks to technology.
Digital transformation and Fintech has already had a huge, positive impact on the forex market, with more progress still to come. New technologies create greater efficiencies within the Forex process, reduce costs, speed settlement and improve transparency. Consequently, the market has become more competitive and is driving further innovation.
Thanks to technology, the forex market has become much more accessible, as data and information that were once too expensive to obtain can now be obtained almost instantly. Now you can analyze the market while you’re having coffee in the morning and be ready to trade once you get to work. Being able to access information at any time without any constraints will surely provide you with a greater advantage.
2. Connecting Traders with Technology
With the rise of social networks over the last decade, more online communities have developed where like-minded traders and investors can share up-to-the-second market insights. The access to shared knowledge and experience provides additional confidence to investors because they can get real-time insights from some of the world’s most successful traders at their fingertips.Beginners may find this section extremely useful as a starting point, and they can use the ideas of experienced traders to guide their trading decisions. To stay informed about other traders’ and analysts’ published ideas, they can also follow them. Furthermore, these platforms allow you to share your analysis with other Forex traders and let you gain greater insight into the current market situation by browsing ideas submitted by its huge user base.
Furthermore, traders can copy each other, increasing their chances of building a successful trading portfolio regardless of the economic level. Copy Trading is one of the most advanced technologies that beginner traders can employ to copy top professional traders and benefit from forex experts and successful traders. This technique is also ideal for those who don’t have time to keep up with the market on their own.
3. Nano Second Speed Technology
Cloud-based ERP, automation, blockchain, and cognitive innovation are likely to continue their rapid adoption in finance, creating more new opportunities to simplify processes radically. Take a look at how nanosecond speed technology will revolutionize finance.Growth of Forex Algorithms
As the adoption of algorithmic execution tools in the Forex market continues to gain momentum, traders are now looking for more sophisticated, objective analyses of their trades. Taking advantage of this switch in the FX market, more Forex brokerages have built Algo Central, giving clients the ability to evaluate pre-, current and post-trade algorithm performance, with the ability to change the execution-style and speed when orders are live.The growing fragmentation of markets and the requirements of transparent execution excellence allow algorithms to take advantage of a diverse range of liquidity pools and customize their approach based on the characteristics of each pool. In response to market variables such as time, price, and volume, these algorithms create dynamic, programmable instructions that allow users to specify benchmark performance criteria that enhance performance.
5G to Revolutionise Global Trade
While the technology is being upgraded with greater regularity, it is fair to say that 4G has only made incremental improvements over its predecessor. However, the same can’t be said for 5G, which is primarily designed for transferring data and promises speeds that are 20 times faster than what’s currently available.Faster data transfer in the financial sector means smoother transactions and processing, whether that is performing a credit check, making a payment, placing a trade, or transferring funds. This can fuel the growth and adoption of open banking, which relies on APIs to transfer data between financial institutions and third-party service providers. 5G will promote greater adoption of applications in this area, such as using phones as wallets or paying for things wirelessly with devices such as smartwatches as mobile financial services become more seamless.
Data Centers: The Future Trading Infrastructure
With the shift to electronic trading, data centers have become more important in the financial sector. Financial market data can now be accessed by anyone with an Internet connection, allowing them to participate in trading activities. Trading takes place all over the world, and data centers must be able to handle the demand and perform consistently.The transition of data centers from a centralized, locally-based infrastructure to a cloud-based one, and the enhanced connectivity of 5G, will definitely fix unnecessary delays in the trading sector as data-driven technologies advance and financial institutions explore them.
High-frequency Trading Servers
The trading industry relies on servers for reducing tick-to-trade delays; this is why the product demand is increasing. By 2028, the global market for high-frequency trading servers will reach USD 501.0 million, registering a CAGR of 3.5%Additionally, as server technology has improved over the years, high-frequency trading (HFT) servers, in particular, have witnessed advancements in terms of processor technology, which is causing the finance industry to grow. In the coming years, these advancements are expected to become an indispensable part of the finance sector as a result of the necessity to track forex markets where every nanosecond counts.
4. Artificial Intelligence will drive massive value creation
The financial sector is likely to adopt an AI-first mindset to make it easier to resist the penetration of new technology firms. Their ability to connect complex financial networks, drawing on a wide range of disparate data sources, will have far-reaching implications in the future.The use of financial analytics incorporating enhanced privacy protections will ensure that only relevant, necessary, and properly sanitized information is used in the training of financial models. Security technologies like encryption, multi-party computing, zero-knowledge proofs, and other privacy-aware tools will create a new frontier for consumer protection.
Artificial intelligence will be integrated into all aspects of financial industry operations across the front, middle, and back offices. Applications are aimed at creating better customer experiences, such as personalized user experiences, analytics, chatbots and automated transactions, as well as alternative credit scores based on non-financial data and facial recognition. These applications include smart processes, knowledge representation (epitomized by knowledge graphs), and natural language processing for fraud detection.
Original Article: How Fintech Revolutionized the Forex Trading Landscape
Disclaimer: This post is from Aximdaily and it is considered a marketing publication and does not constitute investment advice or research. Its content represents the general views of our editors and does not consider individual readers' personal circumstances, investment experience, or current financial situation.
