Learn How The Forex Market Evolved

 

Forex Trading Algorithms [The Future of Forex Trading]

 

What happened?

About 500 years ago, the first Forex market was established in Amsterdam with the aim of stabilizing currencies through trading. Ever since then, there have been advancements and innovations that have occurred, shaped by specific events in history. Starting from the early 1800s when Lydia created the first gold coin then down to 1900 when major countries like America, France, Germany, and Japan adopted the gold standard. During World war I and II, the gold standard broke down which lead to the introduction of the Bretton Woods system (1944 – 1971). This was a major transformation that helped in the restoration of global economies but eventually failed due to the increased circulation of US Dollars which no longer commemorate the value of gold. It birthed the Free-Floating system which gave room for greater fluctuation band for the currencies. This thrived for about twoyears but eventually collapsed and led to the creation of the Plaza Accord involving finance ministers from major countries in the world to reach an agreement to depreciate the US Dollar. Not too long, traders began to discover the potential for profit in currency trading. Moving forward to 1992, Eurozone and Euro were formed because the Maastricht Treaty was signed. This gave European banks and businesses the benefit of removing exchange risk in a globalized economy. Finally, the era of internet trading was finally born. Currency trading experienced exponential growth since the 1900s when people’s perspectives changed seeing and experiencing the possibility of an individual sitting in the comfort of his/her home and partaking in the global market by clicking a few buttons.

What’s happening

In the foreign exchange market, new trading opportunities have been created with minimal trading costs, high transactional transparency, and liquidity. This doesn’t involve only Forex traders who trade the market for a living but also ordinary people as well. This has attracted the attention of investors and traders around the globe because of its advancements and potential growth in the future. Forex has proved the be very lucrative because of its ability to thrive amidst the lockdown that occurred during the pandemic. Like never before, advancements in technology have caused an exigent transformation in the foreign exchange market. Trades can be performed in milliseconds on a computer, giving retail traders access to the market, while real-time streaming quotes have brought impeccable transparency, creating a leveling ground between traders and their most sophisticated clients. Another disruption is the introduction of Forex algorithmic trading, which has led to improved functionality and strategic participation in forex trading, but also comes with risks.

Forex Trading Algorithm

An algorithm is a specific set of rules or procedures designed to accomplish a definite task. In trading, computers execute user-defined algorithms, which exist in the form of a set of rules, such as determining the timing, price, or volume of trade. There are four basic types of algorithmic trading in financial markets:

• Statistical algorithmic trading: profitable trading opportunities are executed based on a statistical analysis of historical time series data.
• Automated Hedging Algorithmic Trading: A strategy that generates rules to reduce a trader’s risk exposure.
• Algorithmic Execution Strategies: The goal of an algorithmic execution strategy is to execute a preset objective, such as reducing the market impact or executing trades quickly.
• Direct Market Access: Describes the optimized speed and lower cost by which algorithmic traders can access and connect to multiple trading platforms.

Over the past few years, the adoption of Forex trading algorithms software has been a dominant player in the advancement that has taken place in Forex trading. This is due to the opportunity it has created to automate trade processes hence reducing cost and increasing efficiency. Market orders are being executed based on preset rules and market conditions. Banks are not left out from this trend, they can update price quotes on currency pairs speedily, therefore reducing the human time required for manual execution.

The future

$6.6 trillion worth of transactions takes place daily in the Forex market which makes it the largest financial market in the world larger than even the stock market. The greatest volume of currency trading happens between banks followed by hedge funds and investment managers which are the second-biggest players in the market. Multinational corporations involved in importing and exporting goods also participate in Forex transactions which makes them third in the hierarchical structure. Finally the retail traders or individual investors which are most likely you reading this and I. It’s not a surprise that the major market players make use of very sophisticated trading tools and algorithms to automate their trade processes and reduce risk to the barest minimum, therefore, exposing retail traders to more risk of losing their capital and discouraging them from participating in the market. But this shouldn’t cause any fear or discouragement for potential and active traders but a more strategic approach towards the ever-growing market. However, tactical investment algorithms shouldn’t be overlooked but maximized by investors and traders. It not only allows for efficient trade execution but also privileges to maximize future trading opportunities to profit. Check out zeuscapital for more information.