Is Technology Paving the Way for More Internationally-Focused Broker-Dealers?

Forex is the world’s most lucrative market, and with the rapid rise of digitalization on a global scale, we may be set to see more broker-dealers adopt a far more international focus as information barriers are broken down across borders. 

Digitalization is actively changing the way we navigate the financial landscape, and forex trading stands to be one of the key beneficiaries of this widespread digital transformation push. 

While the world of finance had been a little slow on the uptake of digital transformation initiatives prior to the pandemic, we’re now seeing an explosion in use cases that can directly benefit FX and the quality of service provided by broker-dealers. 

With the help of these emerging technologies, forex trading managed to reach a peak volume of $7.5 trillion per day in 2022, with new records set to be broken as institutions adopt a more global focus for operations. 

Until recently, more internationally focused forex markets have been a point of concern for broker-dealers beyond commonplace trading pairs. In many emerging markets, it can be hard to gain sufficient data and conduct the fundamental analysis needed to safeguard operations while providing traders with a greater degree of choice. 

However, the rapid evolution of artificial intelligence and machine learning technologies is helping to make emerging markets more accessible, with plenty of global benefits available for the broker-dealers that are pioneering these new trading opportunities. 

With this in mind, let’s take a deeper look into the digitalization of forex in a truly globally-focused market for broker-dealers: 

The Emergence of AI and ML

The incorporation of artificial intelligence and machine learning into broker-dealer operations will be a driving force for digitalization within the forex landscape. 

In utilizing these technologies, it’s possible to deliver predictive analytics, automated trading strategies, and even personalized recommendations on a far more encompassing scale than ever before. 

This can help to drive profitability for traders while democratizing FX markets for all participants, helping to shake off the industry’s troubled reputation for causing retail traders to run up heavy losses. 

Transformative Fundamental Analysis

Crucially, AI models have the ability to take forex fundamental analysis to brand-new trading frontiers throughout a series of diverse structured and unstructured sources. 

Critical sources of information from world central banks and macroeconomic reports can be compiled and interpreted instantly. At the same time, the pervasiveness of generative AI means that trading strategies can be informed through as far-reaching factors as satellite crop analysis and retail parking lot traffic. 

These analytical models can utilize these diverse sources of information to develop more accurate forecasts by automatically anticipating the level of opportunity or risk caused by different fundamental factors. 

By incorporating these factors alongside social listening across networks to analyze market sentiment, AI models will be capable of identifying factors that could impact the performance of a currency and assess how it could affect trading pairs. 

Perpetual Access to World Markets

These innovations can help to inform algorithmic execution models to carry out client strategies efficiently and fully autonomously. 

Automated trading systems exist in many forms today, and are popularly known as expert advisors (EAs), trading robots, or simply as ‘bots’. 

Because algorithmic trading relies on following pre-programmed terms and rules based on market data and the interpretation of data, more sophisticated AI and ML analysis tools open the door to 24/7 autonomous trading which can accurately make compliant decisions for trading throughout foreign emerging and developed markets alike. 

For broker-dealers, this means that the adoption of globally-focused prime services can help to leverage a conducive environment for traders to use algo execution platforms to make around-the-clock trading decisions efficiently, regardless of the associated liquidity and a lack of information available to human traders. 

Additionally, automated trading systems can also aid traders in limiting the impact of human bias, which can lead to emotionally charged decisions and cloud trading judgment when dealing with emerging market currencies. 

Next-Generation Risk Management

The biggest issue facing the integration of a global market outlook in forex that accommodates emerging markets alongside their established counterparts stems from a lack of qualitative and quantitative data that can cloud the risk management of broker-dealers. 

Technology is helping to improve these areas of risk management in developing markets by empowering traders to break down communicational barriers in identifying prospective risks. 

Already, modern broker-dealers have implemented a series of stop-loss and limit orders as a means of protecting against sudden losses of liquidity. These approaches help traders to pre-set the levels at which they want to enter or leave deals, minimizing the risk associated with these illiquid markets which are more prone to volatility. 

With the help of artificial intelligence, broker-dealers have the ability to leverage more bespoke recommendations that closely conform to a specified trading strategy and level of risk appetite. 

When compiling extensive fundamental analysis, AI tools can communicate its level of data accuracy and associated risk with certain trading pairs to ensure that all traders actioning deals are well aware of the dangers associated with the market. 

Opening the Door to Global Forex

With forex commanding as much as $7.5 trillion in daily trading volume, it’s clear that opening broader access to emerging markets can be full of opportunities for traders of all competency levels. 

However, with clear greater risks, broker-dealers must rely on the emergence of technology like AI and ML to democratize data and automate insights into these new markets. 

For those who open their FX strategies to global developing markets, the world can be their oyster. However, with the high volatility and risk associated with these smaller landscapes, artificial intelligence will be an essential component in navigating this brave new frontier.