The global forex market is a highly lucrative place, with peak trading volumes reaching $7.5 trillion per day. Such astronomical figures have intensified the level of competition among traders and paved the way for the emergence of new technologies as leading tools to steer investment decisions and to capitalize on opportunities earlier. One of the most effective innovations in recent years has been big data.
The integration of big data into the FX landscape is a revolutionary prospect and provides traders with unprecedented advanced and sophisticated insights that can shape strategies, risk appetite, and decision-making.
Uniting Forex and Big Data
Gaining the ability to analyze massive, complex, and unstructured datasets to gain essential insights and drive data-driven decisions is a core facet of big data analytics, and carries significant weight in shaping FX strategies.
By collecting, processing, and analyzing different data sources throughout a series of fundamental analysis sources like international news platforms, social media, and even weather forecasts among other datasets, these next-generation insights can offer a more holistic overview of risks and opportunities throughout FX markets and provide traders with an advantage in capitalizing on opportunities before the wider market identifies them.
There are many ways in which big data can be utilized, and with this in mind, let’s take a look at five transformative approaches to get the most out of these data insights:
1. Predictive Analytics
Particularly when it comes to exploring opportunities in more volatile global markets, big data has the power to become a strong prediction engine for traders of all levels.
Utilizing sophisticated algorithms, big data is capable of offering incisive views of currency exchange movements based on a series of trend indicators throughout a variety of data sources–helping traders to time their transactions, plan pivots, and maximize their yield further.
The predictive power of big data excels because it can consider far greater varieties of information at a pace that’s simply impossible for human traders to keep up with, helping to provide actionable insights faster than the competition on the market.
As an example, big data can even look to global advance weather forecasts and assess whether upcoming events could impact agriculture, energy, and commodity production in a way that may impact domestic currency before suggesting the most advantageous trading pairs to maximize the potential of a trade.
2. Assisting Algo Execution
Big data is also a core component of any successful algo execution strategy for forex traders. Data-driven algorithmic execution tools can help to drive FX market efficiency without the dangers of human error or psychological fallacies such as emotional trading, overtrading, or chasing losses.
Through big data analytics, modern algo execution methods can automate trading to execute trades as soon as the data identifies a market opportunity.
The circumstances surrounding trades can also be predetermined by the traders themselves based on specific goals and risk appetite. Insights can also be drawn from past performance as well as predictions drawn from fundamental analysis.
This means that the dangers of missed opportunities or underutilized data by human traders in mitigated, and opportunities can be capitalized on in an instant.
Algorithms can also identify opportunities in CFD markets, and it’s worth investors looking to CFD brokers reviews as a means of gaining insight into how different brokers use algorithmic trading strategies to boost efficiency for users. By combining a CMTrading review, Avatrade review, and Exness review, it’s possible for traders to learn how each leading CFD brokerage can offer algo execution to match their specific goals.
3. Risk Management
One of the most effective ways big data can aid trading efficiency in FX markets is through next-generation risk management.
Because big data analytics can provide comprehensive actionable insights for investors, forex traders can interpret the data by adding risk controls and backtesting to ensure a comprehensively slick trading strategy that suits their risk appetite.
Big data insights can also work alongside data validation and verification measures to ensure the accuracy, consistency, and reliability of the information at hand.
Additionally, the ability for traders to gain insights from a more diverse range of data sources, automatically compiled and presented by big data, offers a significant advantage in building reliability, rather than trusting the accuracy of a single source.
4. Compliance
Particularly for institutional traders, ensuring that compliance is adhered to throughout the many nuances and variations across international regulators can be a challenge that’s extremely difficult for any individual to keep on top of.
Regulation throughout FX markets can be exceptionally challenging, but big data can help to actively monitor various compliance issues throughout a trading strategy and utilize both natural language processing (NLP) and machine learning to reduce errors and time-intensive compliance monitoring to lower the risks of incurring regulator fines.
These tools can unite through AI to deliver comprehensive reports that can be simplified to overviews in meeting various regulations and market conditions.
It’s fair to expect that big data will continue to mature and AI will be capable of compiling vast unstructured data into actionable insights to maintain compliance across various international markets in a way that can safeguard against possible cyber crimes, too.
5. Robotic Process Automation (RPA)
Big data can be used as the cornerstone in robotic process automation (RPA), which can undertake the more monotonous tasks associated with trading to provide invaluable time and resources allocated directly to trade execution.
According to LSEG data, a recent survey saw 43% and 35% of respondents claim that trade monitoring and trade execution respectively could be most improved by access to new tools or ways of working with financial data.
The survey also suggested that 53% of all respondents claimed that delays in data source consolidation with input errors and data access were the most encountered problems in terms of efficiency.
It’s through big data that process automation can effectively remove time-intensive low-skill tasks surrounding the manual compiling and interpretation of data, along with the dangers of human error undermining the profitability of the insights gained.
Driving the Future of Forex Trading
The role of big data in the forex landscape can’t be understated, and the quality of fast and accessible insights for traders to capitalize on can make all the difference between taking opportunities or leaving them for competitors to take advantage of.
Crucially, big data paves the way for informed decision-making that conforms to the trader’s goals and risk appetite. In enhancing the quality of actionable insights available to investors, it’s possible to build a sustainable FX strategy that will continue to pay dividends long into the future.
About the Author
Rebecca Barnatt-Smith is a freelance journalist covering all things business, stocks and marketing strategy for startups across the globe.
