Why AI-Driven Forex Trading might still be out of reach for Retail Investors

Artificial Intelligence is nothing new in the world of finance. It’s used for forecasting finances in business, is becoming increasingly common in budgeting apps and finance management and can help to detect fraud and security concerns during transactions. However, more recently, investors and traders have been paying attention to artificial intelligence in regards to how it can perform on the foreign exchange (Forex).

While AI-powered forex trading is very much a reality today, with institutional investors utilising the technology to determine the best moves to make within the markets, those in the retail markets aren’t benefiting quite as much. Why, you ask? That’s what we’re exploring in more detail, below.

There Isn’t As Much Around As You’d Think

Worldwide, third-party forex trading platforms have been claiming time and time again that they utilise AI in order to allow investors to make more informed decisions in trading. However, studies suggest that the majority of these platforms don’t actually have AI within their system at all. The same is being said about retailers.

Whether this is due to the fact that AI is out of reach for smaller retail investors, or simply because they don’t have the capability or capacity to run the technology, AI isn’t as common in finance as you’d think. There are a limited number of artificial intelligence algorithms currently, however, those that are in place are considered a valuable tool in Forex. Take Robots, for example – in Forex, trading robots are computer programmes that utilise various trading signals in order to determine how the market is likely to perform. On a retail or domestic level, traders can utilise this kind of information in order to make informed decisions about whether they buy or sell.

Costs

Artificial Intelligence, or rather the set-up around it, isn’t cheap. AI-based systems are often expensive to build, even when considered simple. The cost of securing servers for processing and the data needed to not only feed the system but provide enough for the machine to learn from. For this reason, the costs needed to set up something as extensive as an AI algorithm for traders are extensive, meaning that in most cases, only those with a huge amount of capital behind them may be able to better afford the initial system, as well as any ongoing updates.

For retail investors, the budget may not be there for an in-house platform and those using third-party platforms may be restricted on what they can see or utilise. While this is beginning to change, it’s a seemingly slow process. The gap between retail investors and AI-powered forex trading can only be bridged with more affordable costs and accessibility, but whether this will become standard in the next few years has yet to be seen.

Ability To Handle Fluctuations

Institutional investors often have more money than retail investors, and so their ability to handle and absorb risk is much greater. If the chosen market were to crash, for example, having the structure and funds to handle that risk without bankruptcy or financial concerns is vital, particularly when monetary gains can be wiped out in mere seconds.

AI is still being improved upon day by day and while it is well-designed to offer longer-term insights, it can’t always predict sudden or short-term changes that can crash or rocket a market. For this reason, even with machine learning in place, risks are possible and so until the systems mature, it’s unlikely that retail investors will be willing to take such a risk. Whether they’ll be more willing to risk their investments as AI becomes more intelligent has yet to be seen, but with a better sense of reliability with what these systems are telling us, it’s entirely possible that we could see retail investors joining the Forex markets more prominently.

Artificial intelligence has proven itself as a disruptive force across a number of different industries, and the finance industry is certainly no exception. Within the foreign exchange, AI-powered systems could have the potential to offer more informed and risk-free decisions, but time will only tell as to how successful this will be in the future.

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