AI And What It Offers To The World Of Algo Trading

Back in the days, trading was a paper-based activity for the financial markets. If you are young and new to the Forex market, you probably haven’t witnessed these times, and believe us —  today’s digitalized market makes everything simpler. While one had to attend in-person to purchase or sell an asset in the earlier days, now they can even place thousands of orders in milliseconds thanks to an electronic-based marketplace. By realizing the power and capacity of computers, traders have tried to find the most cost-efficient and profit-maximizing method of trading and the result was algorithms. To create a perfect trading strategy in algo trading, someone has to resort to artificial intelligence (AI) and what it brings to the table. 

AI and Its Applications 

AI’s history can be traced back to 1955 and the idea behind it belongs to John McCarthy. It is designed to alter natural intelligence and have at least one behavioral function such as planning, reasoning, problem-solving, and perception. 

Many AI applications find themselves a place in the world of algo trading, but one is superior to the others: machine learning. This application depends on the idea that machines can interpret different cases and learn in their own structure by accessing Big Data. This system does not require any further programming since it can improve itself based on what it is presented.   

How AI Connects With Algo Trading

If we would mention algo trading, High-Frequency Trading definitely comes with it. Algorithms are supposed to execute extreme numbers of orders in the blink of an eye while injecting liquidity into the market. To process all the transactions in a healthy way, ML computer systems are taught to detect the changes in the market with a high level of accuracy and provide the necessary information to algorithms. In this way, algorithms can bid more efficiently in a shorter time. The large data sets allow ML systems to forecast upcoming price movements and support different trading strategies. 

Normally, a predefined strategy based on specific instructions is called algorithm and people can benefit from an algorithm by executing transactions themselves. However, many traders have claimed that they cannot fully stick to their trading strategy due to their emotional status and psychological factors. AI removes this inefficiency by ignoring human behavior and ensuring that the trades will be made by the computational process.

Share this article

Leave a Reply

Your email address will not be published. Required fields are marked *