How Technology Advancements Are Changing Trading Behaviours

Technology has a huge impact on all industries, helping to speed up procedures or free up manpower, so it can be better spent doing other more complex jobs.

Trading in the foreign exchange market (Forex) is no different, as technological advancements are helping to shape trading behaviours and determine strategies so that traders can make as much profit as possible.

Forex trading explained

To appreciate how technology, including artificial intelligence (AI) and machine learning, is altering the world of Forex trading, it is important to understand what is involved when it comes to trading in the foreign exchange market.

It is the act of buying and selling pairs of currencies to make a profit. By anticipating changes in currencies, traders can take positions to benefit from a change in the demand for the currency.

For instance, traders may buy the Euro against the US dollar to make a profit if they think the former will increase in value. They can then sell the Euros back for more dollars than they bought them for, making themselves a tidy profit.

As it occurs over computerised networks across the globe, 24 hours a day for five and a half days a week, currencies can be traded nearly all the time. Therefore, price quotes for currencies can be constantly changing, giving traders the opportunity to make money at any given moment, wherever they are in the world.

How have prop firms boosted the Forex market?

While Forex trading used to be conducted by only multinational corporations, thanks to the internet, anyone can have a go at trading these days, including individual investors.

Even though commercial and investment banks still do the majority of the trading on the Forex market, many traders are able to make a substantial income of their own by using prop firms.

These are organisations that provide traders with significant amounts of money to trade with, so they can earn large quantities of money back.

By giving them access to this capital, their wins are much greater. At the same time, the prop firms earn a share of the profits.

Individuals, whether beginners or experienced traders, also benefit from not having to risk their own money when trading. The volatile nature of the Forex markets mean there is always a risk of losing cash. However, by using a prop firm, traders do not have to worry about having to start from scratch again, as it is not their money they are trading with.

This allows them to take greater risks when trading, so long as they can show they have solid risk management strategies under their belt and are acting based on data and statistics, rather than on their emotions.

The use of technology to analyse data

This is why technology is becoming increasingly useful to Forex trading, as it can analyse huge amounts of data much faster than human brains can.

Chief commercial officer at FXCUBIC Wassim Khateeb spoke at the Finance Magnates London Summit 2023, saying: “Technology allows [us] to calculate very large amounts of data to analyse very large amounts of data in a short amount of time and reduce the possibility of human errors.”

Brokers, for instance, can create customised algorithms to analyse trades from different types of traders and strategies. This helps to reduce the risk by either keeping the riskier ones in house or sending them to a third party.

AI and machine learning also have big roles to play in trading, as they can improve efficiency, speed and accuracy.

John Murillo, chief dealing officer at B2Broker, stated: “The more automation you get to achieve, the more clients you can serve in a timely manner.”

AI can group traders together depending on their performance and profitability, which gives brokers more information about their risk exposure.

At the same time, technology, including AI-powered chatbots, automated account opening, and custom programs, can have a big impact on usability, helping more people become knowledgeable and experienced when it comes to trading. Therefore, it encourages more activity, earning brokers and prop firms a greater amount of money.

Technology and prop firms

Technology has a big role to play for traders who use prop firms, with one trading expert likening prop trading to Uber’s ride-sharing system.

For instance, prop trading enables investors to trade using the prop company’s capital, as opposed to their own, in the same way that Uber lets people use someone’s car with its rideshare services.

In both cases, the intermediaries, who are providing the services, take a share of the profits and earn something in return.

Vitaly Kudinov, SVP or Sales and Business Development at Devexperts, told the audience: “There is a rating system, so the best performance gets the highest rating and that’s the popularity growth.”

Noting that there are many prop trading firms around these days, he added: “I feel like more brokers would like to have this service in addition to their class brokerage services.”

Prop firms are very popular because they make it easier for traders to enter the Forex world, as they can gain access to the markets simply by paying a subscription fee.

“People are ready to pay a fixed fee just to participate in that very interesting experience,” Mr Kudinov stated, noting the benefits of the technology-driven platform of prop firms.

Take advantage of technology

Individual traders should also take advantage of the technology as much as they can, as it is designed to make their lives easier and their profit margins greater.

For instance, they could set up automated trading alerts so they are able to buy or sell at the opportune moment, without leaving it too late before taking action.

They could also automate trading systems, which means they automatically exit a trade if the currency drops to a certain level.

This allows them to step away from the market data so they are not glued to their computers 24 hours a day, while still being reassured they will not lose money by taking their eyes off it, as actions will be taken on their behalf.

Risk management software can also help traders, particularly those who might be too emotive when their actions. As Forbes states, this provides an “additional safety net” for this type of trader, so they can be reassured that they will make as much money as possible without undertaking too much risk.

Limitations with technology in trading

Although technological advancements are helping to drive the markets, there are still some limitations.

For a start, there is the problem of online security, as a lack of protection could put clients at risk if their data is ever leaked to other traders.

Mr Kudinov commented: “While AI tools like ChatGPT can improve efficiency, they need an extra layer to ensure security.”

Simultaneously, it is important that the systems used are one hundred per cent reliable, as they can impact huge profits.

Therefore, the technology, including the programs fostered by prop firms, needs to be tried and tested repeatedly to make sure it is dependable.

Dinos Michaelides, director of DGM Tech Solutions, told the crowd: “You need to make sure that the technology you introduce is not going to fail at some critical point, ensuring you’re not just a guinea pig.”

Traders cannot part with millions of dollars if they are not certain the technology will not fail on them. Therefore, there needs to be a high degree of accuracy and reliability when using technology in this field.

This is hard when technology continues to develop and change. However, this is why it is important that client feedback and lots of testing are taken into account before new systems are used by traders.

“Reliability is a very big factor,” Mr Michaelides added.

Although technology certainly has its uses in Forex trading, it is important that traders do not rely entirely on computer analysis as part of their strategy.

The most successful traders have been the ones who are themselves incredibly analytical and can understand the data, identify patterns and sift out trends. They have also been able to rely on their own instincts, while not acting on their emotions, and have not been afraid to take risks without being too impulsive or flippant with their investments.

Their balance between being cautious and taking risks; being data-driven and, at the same time, reactive; and being intuitive and, also, analytical has made some Forex traders not only millionaires, but billionaires.

So while technology has the power to do the same to potentially any trader who uses the right computer programs, it remains to be seen whether natural talent for trading will continue to win out in the end.

Alternatively, it could mean the world will see trading success stories like billionaire hedge fund manager Goerge Soros or his chief strategist Stanley Druckenmiller, who is also himself worth $6.2 billion (£4.92 billion) at 70 years old, much more frequently.

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