The use of artificial intelligence (AI) in nearly all areas of our lives has increased in recent years. We now have generative AI chatbots like ChatGPT and personalised customer experience to automate processes and improve our experience in finance, education, and retail. In the forex market, AI can analyse market data, report on trends, and execute trades automatically; here’s how it shapes forex trading.
How AI Collects and Processes Data
AI-based tools gather data from various sources, including social media, financial data, and economic reports. They use the collected data to create predictive models and deliver insights to traders. AI excels at this thanks to its characteristic speed and ability to process complex real-time data from TradingView and other aggregation platforms.
AI robots scrape credible platforms such as central banks’ websites, the International Monetary Fund, the World Bank, government agencies, and news agencies. They also monitor social media sentiment, collecting data that are cleaned, processed, and turned into reports. These reports typically contain forecasts that AI generates through machine learning and natural language processing.
Human writers also use AI to perform various tasks, such as getting accurate summaries of news articles, deep research, and analysing data. This provides AI with data to train predictive and analytical models deployed for AI-driven economic reports. These AI-based reports and tools influence forex traders (and markets) in the following ways:
Access to Predictive Modelling
Predictive models are widely used in the forex market to stimulate market performance based on various possibilities. They require large datasets to achieve consistent accuracy. AI-based tools feed cleaned data into predictive models, analysing multiple data sources in real time to generate reports for traders. AI models can predict currency fluctuations in the forex market by analysing macroeconomic data, geopolitical events, and central bank decisions.
Predictive models are expensive and typically unaffordable by retail trailers. But today, many platforms make it easy to access predictive models using free and low-subscription AI, giving traders more resources and insights into the forex market and significantly enhancing their performance.
Enhanced Speed and Analytical Accuracy
Precision, accuracy, and speed are three crucial characteristics traders need to succeed in the market. AI can analyse data in real time, transmit information, and simultaneously process large data volumes from multiple sources. These allow AI-driven tools to operate at frighteningly quick speeds, much faster than human reactions. The impact on the forex market is that trading robots can improve speed and analytical accuracy, identify complex patterns and trends, and predict market direction more easily.
Improved Risk Management
Deploying AI systems to analyse numerous risks and indicators, such as market sentiments, volatility, antiquity, and volumes, can significantly enhance risk management. Traders can also use robo advisors to understand ideal position size and risk tolerance. At the backend, brokers and financial institutions adopt AI-based tools for protecting funds against cyber threats and mismanagement.
Objectivity and Scalability
Human emotions influence trading in no small way. Most traders have elements of human bias in addition to technical analysis. This is why AI and human analysts consider these factors when making reports. However, AI-driven reports remove the element of human bias, making trading more objective and scalable. AI models are less prone to biases and emotions and can objectively assess market trends.
A potential migration to fully automated trading could unlock a new trading era where only AI-powered robots analyse and execute trades. This could scale the forex market into a more significantly influential industry where AI can analyse large data sets, generate forecasts for multiple markets, automate tedious tasks, and make trading more efficient.
Increased Volatility
Another potential influence of AI-generated reports is that the market may see more volatility, liquidity, or market capitalisation in the coming years. Markets are moved by traders’ sentiments, which are influenced by AI-driven reports. The result is that more traders trade on their forecasts and move the market direction at breakneck speeds. Sudden changes in forecasted trends can trigger market volatility as traders rapidly open or close positions.
All markets require volatility and liquidity for prices to move and for trades to be quickly completed. In the forex market, increased liquidity can impact different currencies, especially the major pairs like GBP/USD and EUR/USD.
Regulatory Implications
The increased use of AI naturally raises key concerns: Is there potential for harmful or wasteful manipulation? Is a fully automated process safe for the multi-trillion-dollar market? Can cyber criminals exploit AI to disrupt markets? Will these AI-driven trades irredeemably affect real-world supplies like minerals, coffee, and semiconductors?
These are valid concerns given current and potential AI capabilities. For example, AI-generated economic reports influence market bias; if many of those reports are false or inaccurate, markets could move without genuine reasons.
Regulatory authorities are implementing strict ethical guidelines for using AI in the financial markets. AI tools must meet rigorous standards and undergo continued evaluation to comply with market realities. Data quality and availability are other areas where forex markets receive regulatory guidelines to maintain integrity. AI models should be robust to perform well on training data and real-life cases.
Closing Thoughts: Leveraging AI for Forex Trading
The ceiling for generative AI (gen-AI) is said to be the removal of human input at any level. Still, before that happens, traders can leverage the immense power of AI to access information faster. They can provide real-time strategies, enhance decision-making and risk management, and influence market sentiments. Traders can enjoy a more seamless and automated trading experience in the forex market, using AI that their broker permits.
