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Intelligent Machines and FX Trading

Many commentators and research analysts believe that Artificial Intelligence (AI) is set to transform the foreign trade, for example; by reducing the cost of numerous processes throughout the trade lifecycle. Spending on AI is expected to substantially increase over the next five years with much of the investment being focused on Machine Learning and Cognitive analytics. However, there remains much uncertainty about precisely how the transformational benefits of AI will be achieved.

Artificial Intelligence (AI) involves substituting humans with machines. AI researchers have focused primarily on expert systems and fuzzy logic. However, with computational power becoming cheaper, using machines to solve large problems became easier.

Due to technological advancements in hardware and software, Artificial Intelligence focuses on the use of neural networks and some other learning methods for identifying predictors, also known as features. This particular application of Artificial Intelligence is also called Machine Learning (ML).

There are a lot of questions and doubts about the advantages that Artificial Intelligence can bring to the Foreign markets.

With the implementation of AI into Forex Trading (FX), Computers will undoubtedly make accurate and precise decisions. Thus, saving time and energy.

Many attempts have been made to come up with a consistently profitable system and inspiration has come from different fields. Some financial institutions like IC markets have been investing in AI for years. Other companies are now beginning to catch up thanks to advances in big data, open-source software, cloud computing, and faster processing speeds.

In some cases, Artificial Intelligence in Foreign trade was successful and those that look most possible often could not be used to trade forex because of some technical associated disadvantages.

During these initial stages of adopting AI, there will be chances for experts who understand it and know how to manage its risks. A major problem with trading strategies with AI is that they can produce models that are worse than random. The traditional technical analysis is an unprofitable method of trading because strategies based on chart patterns and indicators draw their returns from a distribution with zero mean before any transaction costs. Some foreign traders will always be found at the right tail of the distribution and this gives the wrong impression that these strategies have economic value. Some researchers also show that; especially in the futures and FX,  longer-term profitability is hard to reach no matter the strategy used because those markets are designed to benefit market makers. However, in short periods of time, some lucky traders may achieve large profits in leveraged markets. Then, these traders attribute their success to their methods, strategies, and skills, rather than to luck.

However, Professional software engineers have the skills required to build Artificial Intelligence for forex trading but for it to reach the required level of efficiency in FX, they need the cooperation of experts and experienced FX traders. If they can both work for hand in hand, AI in Forex trading can be a dream come true and a success thereafter.

Given that AI means different things to different people, this is a topic that is certain to be coming back regularly in the years ahead.

   In 5 years time, the world might see a full implementation of Artificial Intelligence in Forex trading.




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19 Mar 2009


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