Technology and Its Impact on Forex Trading

• Technology
• Technology

Technology and its impact on Forex trading is a matter of ongoing debate among financial analysts. For example, some of them feel that human input is no longer necessary because of technological advancements that support Forex trading. This debate is happening across a broad range of markets. Remember, different kinds of financial markets exist in today’s world. They include the stock market, futures market, commodities market, and the Forex market. Technology has an impact on all of them. For example, it leads to reduced costs of doing business. It improves the experiences that customers have while trading in stocks, futures, commodities, or currencies. However, the impact of technology on Forex trading is more profound than it is in other markets. Here is an overview of trading technology and its impact on the Forex market.

Data Processing Methods

People process data differently as compared to computers. For example, people evaluate the information they receive subjectively. That means they develop biases because of experiences, emotions, or prejudices. That does not happen when it comes to machines. Computers process information based on the way you program them. That means they will evaluate the markets based on the parameters that you set for them. They will be free of emotions and other human traits that may lead to irrationality. Therefore, the principal impact of technology on Forex trading is that it removes subjectivity in this market. Instead, it facilitates the objective analysis of facts leading to rational trading methods based on tested and well-developed parameters. Reducing subjectivity in the Forex market is critical to profitable trading because Forex trading is emotive. For example, you can hope endlessly for improvement in a trade that will never succeed. Conversely, you can lose hope too quickly in a trade that is experiencing a temporary setback.

The Volume of Processed Data

Did you know that the Forex market is the largest market worldwide? More specifically, it has a daily trading turnover of $5 trillion. That means it has a higher turnover than the combined turnover of all the stock markets in the world. It surpasses all other markets as well when it comes to liquidity. This worth noting that an enormous volume of data is necessary to record and facilitate these transactions. It is impossible for humans to do that even if you assigned every accountant to this task. Fortunately, computers can process this vast volume of data. They can even do it at the speed of light. Humans cannot. Increasing the volume of data processed by computers is possible as well. In contrast, humans have their limits. For example, they experience fatigue, illness, and boredom limiting their ability to process huge volumes of data.

The Speed in Data Processing

Have you heard about High-Frequency Trading (HFT)? It refers to algorithmic trading defined by high speeds, high order-to-trade ratios, and high turnover rates. HFT helps you maximize your earnings because you can profit from small spreads. They recur more often than large spreads do. Taking advantage of HFT without the aid of technology is impossible. There are too many transactions to evaluate and they occur at a fast pace. Most of these trading opportunities are over within minutes. Can you evaluate them within minutes? Remember, processing other types of information is necessary. For example, you need to watch the news, examine social relevant social media accounts, and analyze Forex signals. In contrast, HFT technology notes minute changes in the Forex market and it adjusts to them accordingly. You can process as much information as possible to figure out how the Forex market will react to it. Unsurprisingly, HFT technology would have noticed these reactions before you turned on your TV to watch the news or opened a Forex newspaper.

These are the principal ways in which technology affects Forex trading. Namely, it improves data processing methods because it removes subjectivity from the process of analyzing trade. It facilitates the analysis of a huge volume of data in addition to the speed of this analysis. It is worth noting that only a few trading platforms have maximized the potential of technology in this market. For example, Forex Metatrader 5 has an efficient trading system that takes advantage of HFT technology. Use this platform if you want to earn as much money as possible on daily spreads.