Artificial Intelligence in Forex Trading
capitalmarketsciooutlook

Artificial Intelligence in Forex Trading

By Capital Markets CIO Outlook | Friday, November 30, 2018

According to a number of research analysts, artificial intelligence (AI) is on track to transforming the foreign trade by lowering the expenses of various processes that make up the trade lifecycle. Organizations are predicted to increase their investments in AI significantly over the next five years; the spending on machine learning and cognitive analytics are on the rise too. However, the challenge ahead is to devise a method of implementation that helps reap the maximum benefits of AI.

While AI at the root level involves replacing humans with machines, researchers lay more emphasis on expert systems and fuzzy logic. Since leveraging computational power has become less expensive, it’s now easier to use machines for solving complex problems. Furthermore, technological evolutions have enabled AI to focus on the use of neutral networks and several other learning methodologies for identification of predictors.

The advances in cloud computing, big data, and open source software, coupled with increased processing speeds, have resulted in more companies investing in AI. The incorporation of AI into Forex Trading (FX) can help companies make more precise predictions and decisions. However, among the most prevalent problems in trading strategies with AI is a tendency to generate prediction models that can prove worse than random trading. Since chart patterns and indicators derive their returns based on a distribution with zero mean before any transaction expenses, the traditional technical analysis isn’t a profitable strategy. At times, there are foreign traders on the right side of the distribution, which often gives traders a wrong idea about these strategies. A research also suggests that regardless of the strategy used for trading, long-term profitability in futures and FX is difficult to attain as these markets are primarily designed to benefit the market makers.

In order to overcome this hurdle, organizations must encourage their software engineers not only to build strategies integrated with AI for FX trading but also allow them to work in tandem with expert FX traders. The collaboration between the two has the potential to make wonders happen in FX trading. It is now estimated that the Forex trading world will witness a full-fledged implementation of artificial intelligence over the next five years.

Weekly Brief

Top 10 Trading Solution Companies - 2019