The first successful robot currency traders could be with us by around Her timeframe, which she acknowledges is speculative, takes into account the enormous potential for AI in trading , as well as the equally large obstacles the technology still has to overcome.
There are also many macroeconomic variables influencing the currency markets that make them more complicated to model cognitively. One trader who is open about his efforts to develop AI to trade currencies on his behalf is David Lopez Onate, founder of Forex Artilect.
Although his fund is not yet investable, he believes trading forex is already viable for AI. However, as good as it is now, he believes it will get better over time as it overcomes the challenges that Celent's De Chazournes outlines.
Forex Artilect trades the four major currencies, which keeps trading costs down, typically holding positions for a few days. He says he is applying AI to forex partly because it was his market before he got interested in the technology. Of course, algorithms have already gained considerable traction among traders in financial markets , with a significant proportion of currency trading already conducted electronically, with markedly reduced human involvement.
However, where algorithms excel at analysing large data sets, looking for anomalies or hidden correlations, they lack the critical analysis of a human trader. Software vendors have the programming skills to build AI, but for it to reach its potential trading the currency markets, they need to convince the best FX traders to help them build the systems. If the two groups can work together, AI promises to take algorithms to the next level, marrying the computational capabilities of a machine with the judgement of an experienced trader.
This remains a delicate exercise. Longer-term trading is easier because the signals are much clearer. But we are still experimenting; we are always testing and enhancing the system. IKF, which generates daily market predictions not only for currencies but also for stocks, commodities, ETFs, interest rates and world indices, for the short-, medium- and long-term time horizons, claims to be further along in this process.
Assuming financial institutions find the right mix of machine intelligence and pertinent data, IKF's Golgher says the advantages of trading forex with AI are objectivity, self-learning and flexibility.
The algorithm is always evolving. Creating machines that are better than people at adjusting to new circumstances sounds particularly appealing at a time when central banks are experimenting with new strategies in managing the global economy.
Quantitative easing is a new item in the monetary tool kit, while there is no precedent for the extended period of low and negative interest rates that have prevailed in recent years. AI, just like the best human economists, will only know for sure how these monetary experiments influence markets when there is hard data to analyse. However, for all the successes of a relatively small number of enthusiasts, AI is likely to remain a niche product for the foreseeable future.
Most investors are loath to put money into something unless they clearly understand how it can generate returns and losses, and especially since many were burnt investing in unfathomably complex derivatives before Regulators will also take some convincing before they are comfortable with AI trading systems being unleashed on the markets.
Banks' own risk managers will also want to understand how they work. Until AI systems can clearly justify the rationale behind all their investment decisions, it will be difficult for institutional investors to allocate to them in a meaningful way. Most significantly, to date the cost remains prohibitive. In time, however, AI could be as transformational to trading — in forex and beyond — as the previous generation of algorithms.
In fact, it could be even more so, says Roitman. To receive more FX stories, please sign up to our alerts. Filtering the noise Of course, algorithms have already gained considerable traction among traders in financial markets , with a significant proportion of currency trading already conducted electronically, with markedly reduced human involvement.
Yaron Golgher, I Know First "The signals depend on objective machine-learned and tested parameters, and not on the human derived assumptions," he says. For now, AI is better at making decisions than explaining how it made them.More...