How Fintech Is Helping Redefine the World of Forex for Retail Investors

Howard Goldstein  |


During one of its quarterly “dollar-yen derby” competitions, The Nikkei debuted its proprietary, forex-forecasting AI as part of the competition, pitching the bot against hundreds of readers and analysts who were all trying to predict the year-end exchange rate as accurately as possible.

And as has become the norm nowadays with most things AI-powered, Nikkei’s AI bot trounced the experienced lot of readers and analysts by posting the most accurate forecast of the exchange rate, proving again that AI is king in most areas where it is applied.

Artificial intelligence has been perhaps the loudest element of fintech, the tech trend that has been disrupting the financial sector over the past few years. For retail investors with their hands in the forex game, fintech has been gradually changing different aspects of the trade, especially when it comes to speed and access to high-level trading algorithms.

Take, for instance, the use of machine learning algorithms and big data analytics by institutional investors. For years, the use of AI and machine learning was confined to large companies and institutional players, mainly due to the cost and complexity of such systems. And with 75 percent of forex trades expected to take place electronically in the near future, retail forex traders with little to no access to these systems stood at a great disadvantage.

But in recent years, the sharp decline in the cost of data management and access to analytical tools has made it possible for smaller investors to use AI and machine learning to their advantage. There’s been a steep rise in the number of AI-powered FX startups that have opened up their smart platforms to individual investors, which has effectively brought down the cost of using AI to trade currencies.

I know First, abbreviated as IKF, is one such company. This fintech startup uses an AI-based predictive algorithm to provide market forecasts, something that it’s been getting good at since it was founded a few years ago.

Another platform, Forex Artilect, uses AI to try and overcome the limitations of non-linear trends in financial markets that older algorithmic tools had, all in efforts to provide the most accurate market predictions for retail FX traders, one of the many perks that were only exclusive to institutional traders.

In addition to increased access to the forex market, fintech is also helping to break down complex concepts and practices, allowing virtually anyone with some cash to risk to get into the game. For instance, tracking the VIX, short for the CBOE Volatility Index, is a complex yet profitable task for investors and traders that want to make money by predicting market volatility, usually within a 30-day window.

Fortunately for many modern-day traders, fintech is making it easier to track and trade VIX and related financial instruments. Many integrated software solutions use big data analytics to integrate such instruments into their platforms, automatically granting retail investors access to high-end financial insights from an app or web-based platform.

And that’s not all.

Advances in fintech and other facets of technology have given rise to social trading, a popular concept that lets traders take advantage of peer-to-peer networks to improve their odds when trading currencies. Social FX trading allows one trader to follow and execute another (often more experienced) trader’s trades without any substantive analytical work, thus helping novice traders reduce risk and shorten the learning curve that typically accompanies entry into FX trading.

Bottom Line

There are a ton of other ways that fintech is asserting itself in FX trading, including cutting out middlemen and fees via blockchain-based trading platforms and improved security and transparency on currency exchanges. Most of these applications and associated benefits should become clearer within the next few years as financial institutions adapt to the changing times, something that they’ve been slow to do.

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