The Automation Revolution In Forex Trading

Paulsy

Well-known member
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 trading allows you to walk away and watch the strategies work, eliminating some of the emotional lead we have seen in the past."
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 scalpingThe 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.
Algorithmic trading includes high-frequency trading, characterized by the extremely fast rate of trade order execution. Traders can benefit from high-frequency trading by making trades within milliseconds of incremental price changes. As a result, traders can act with greater precision and speed than with manual trading methods.

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.
 
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