Are Forex Traders Being Replaced by Robots?

recent article on Bloomberg revealed that forex trader positions are dwindling in Wall Street. As it turns out, several investment banks and financial institutions such as Morgan Stanley, Barclays, and Societe Generale SA have been downsizing their currency exchange divisions, forcing some employees to take pay cuts or get laid off.

forex robotOne big reason for this is the emergence of algorithmic trading systems, which offer several advantages versus actual human forex traders. Also known as “black box” systems, these strategies can conduct complex calculations and execute multiple trades in just milliseconds, way faster than it takes for normal folks like you and me to decide which currency pair to trade or whether to take a long or short position.

Algo forex systems can also stay up and running for as long as the markets are open, taking trade signals without much downtime, unlike employees who usually work on shifts or need to take coffee breaks every once in a while. For a company, it can definitely be more cost-efficient to keep a machine on for an entire week instead of hiring several traders to watch price action and make trading decisions throughout the day.

Then again, these changing tides seem to apply more to institutional traders than retail forex players. After all, the institutional trading industry (including those in equities, commodities, and futures) has already undergone a huge shift from the days when one had to place a telephone call to a broker to execute a trade to the advancement of online platforms when just a few clicks can allow one to participate in the market.

See, not all machines are out to get ya! In fact, it’s this development of online trading that has given retail traders like us room to grow. So where does that leave us now?

Boris Schlossberg of BKForex points out in a blog post that algorithmic forex systems contribute to making the market more efficient, eliminating rate-manipulation and collusion among investment bankers while providing everyone access to correct price information, thereby giving retail traders a mostly level playing field.

“And therein lies the irony. The very same technology that is killing the pro trader is enabling the retail trader to compete effectively in that most unforgiving of arenas – the FX day trading market,” Schlossberg wrote. He also noted that there several trading services that can be accessed for free (or for cheap!) as more brokers and financial applications target retail forex players.

To this day, the forex arena has continued to expand, reaching $5.3 trillion a day in global currency trading volumes. While the industry has seen a few road bumps last year, it looks like the market is off to a strong start this 2016 thanks to the pickup in volatility and ever-changing sentiment and monetary policy biases – something that machines don’t usually pick up on.

  • One and only idiot

    I would say…market manipulation just got better and secretive with all these robots. Remember big institutions can develop and deploy manipulative algos according to their needs.

  • James

    Robots are slowly replacing traders for the last 10yrs, in germany and Holland they have loads of computers doing algorithms and trades on a daily basis with only 1 trader to about 12 screens just to look out for any anomalies. Then you have the IT support staff to make sure everything is running and performing to an optimum.