How Alternative Data Influences Forex Trading

Capital Markets CIO Outlook | Tuesday, December 24, 2019

Forex traders are increasingly leveraging alternative data to gain a better market perspective and make better trading decisions.

   FREMONT, CA: The proliferation of data is transforming the operational aspects of various industries. Traditional data sources and methodologies may not suffice the current market demands. The capital market is not alien to the above trend either. The sector is using alternative data to understanding the current as well as upcoming market trends. Alternative data is also being used for forex trading.   

Every investment decision tries to leverage data-driven insights. Alternative data offers a significant edge to the investment firms, which can influence the various trading aspects. Forex trading is one such aspect where information advantage is the key. However, the above data can be difficult to obtain. Even the government data often fails to depict the bigger picture. Technology is addressing the above challenge with artificial intelligence (AI), enabling a constant, refined, and real-time flow of information to financial screens. 

Although alternative data was initially introduced to contribute to the hedge funds, it is widely being used for the entire capital markets. Message boards, social media, and other public information sources have also become critical to forex traders. Apart from social media, credit card transaction activity and satellite imagery also influence trading signals enabling the forex traders to make better and sharper decisions. Alternative data enhances the situational awareness of the traders and aids them in developing strategies based on the insights. Additional layers of information gained from alternative data allow the forex traders to either confirm or adjust t

heir strategies in real-time.

Moreover, there are various indirect factors, spanning diverse sectors that can influence the forex market. For instance, the political landscape of a country plays a key role in the economic outlook for that country, too, and consequently influences the perceived value of its currency. Another key influence is the balance of trade levels and trends among nations. For instance, a nation with goods and services having high-demands will see an appreciation of its currency. Alternative data can cover the above aspects and offer significant trading insights to the forex traders.

Alternative data can influence the way forex traders involve in trading and significantly impact their decision making capability.

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