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Understanding The Technology Behind The Forex Market


The role of technology in forex trading cannot be dismissed as the currency market cannot function without the advanced technical infrastructure that is being used for trading. The OTC market is heavily dependent on technology as it has no physical place of existence or centralised exchange where the trading process is carried out. It is a virtual market which cannot be accessed without the internet. Those who are planning to get into forex trading or are already involved in trading need to learn about the significance of technology in the trading process and incorporate advanced technology into their forex strategy for better results.

In this blog, I will be sharing some valuable information that can help you to make progress in your trading journey.

Discover the World of Forex Trading

Before breaking into the technical side of the Forex market, let’s start by discovering the world of Forex trading which is a place full of opportunities if you are skilled enough to find and use them to your advantage.

The Basics of Forex Trading

The idea behind forex trading is pretty simple. The exchange rates of currencies keep fluctuating due to a lot of reasons. If you are able to predict the potential fluctuations in advance, you get a chance to make a profit from the favourable market situation. The forex currency pairs are bought and sold by traders depending on the direction in which they expect the price to move. For this, they carry out technical analysis which provides a clear picture of the market trend through price charts that can be used to detect market trends.

The buyers open a long position as they anticipate the value of the base currency (first currency in a pair) will rise against the quoted currency (2nd currency in a pair). Those who are shorting a pair are trying to make a profit from the downtrend or price fall as the value of base currency depreciates or the value of quoted currency appreciates. Since the currency values are influenced by economic indicators and other major news events, you should also consider fundamental analysis for planning your trades.

Regardless of the method that you follow for analysis, there are some simple free forex tools, which can be used to make informed decisions. You can even calculate the outcome of your trades with the help of a profit calculator. You just have to enter the opening and closing price of the trade along with the trade size in lots and choose the currency pair along with the base currency. The profits will be converted to your preferred currency instantly.

How Does Technology Influence Forex Trading?

Technology is an inseparable part of the forex market as you need to use trading software to access the market and place orders for buying/selling different currency pairs. This software is known as a trading platform and it comes with all the tools that you will need for analysing the market. There will be a trading terminal, charting tools, technical indicators and more that can be found in the online trading platforms that are offered by forex brokers. MT4 is the most preferred platform in the forex trading community and it appeals to beginners and professionals alike. The advanced MT5 is more suitable for modern traders.

If you are still confused about choosing a platform, you can simply open a demo account to test the tools and features. Check if your broker is offering any other user-friendly platform and pick the one that’s perfect for you. You can even download the mobile app versions of these platforms on your smartphone and trade conveniently from anywhere.

Should You Automate Your Trading Strategy?

Not all of us have enough time to watch charts all day long and analyse the market. Trading can often be a tiring and tedious process which makes many of us distracted in the middle of a trade. At the end of the day, we are all humans and bound to make some mistakes due to fatigue or due to frustration. The emotional bias that you feel during the trading process can cost you a lot in the volatile forex market.

But what if you can remove all these limitations and make profits without trading on your own? This is the very essence of trading automation and algorithmic trading. It is not just about using robots to automate the process but also about using simple algorithm-based tools that provide accurate information. For example, the margin calculator helps you to figure out the margin needed for a trade, which helps manage risk effectively.

Is AI Better Than You In Trading?

If we consider speed, accuracy and efficiency, AI is superior without a doubt. But when it comes to critical thinking and common sense, humans have to be there to monitor the trading process. Still AI tools like Chat GPT can assist you in research, analysis and even coding of strategies. Sometimes an EA may trade better than a manual trader but it cannot adapt to the changes in the market situation.

Why Do You Need Technology To Trade Forex?

These days, we are dependent on technology for everything and when it comes to forex trading, it is carried out in a technical infrastructure. Speed and precision are very much required to get the best possible results as a forex trader. The advanced technology and automated tools can help you in enhancing your skills and making quick decisions. The chances of mistakes can be reduced by using reliable tools. For example, if you try to calculate the pip value manually, you might get it wrong due to the decimals and conversion rates that have to be considered. But when you use an online pip calculator, it will give you accurate values as long as you enter the correct data.

Limitations of Technology

Technology can be constructive or destructive, depending on how you intend to use it. When it comes to trading technology and innovations that are taking place in the forex market, you can see how it has changed the trajectory of forex trading. One limitation of technology is that it often makes us worried about security, especially with all the scams that are happening in the forex market. But, cyber security will strengthen with time.

Despite all the advancements in technology, I’d suggest not to over-rely on it as a trader. You may have the perception that AI is superior to human intelligence, but always remember, it is made by humans in the first place. Don’t expect an EA to make all your trades profitable. Use your analysis as well before using those automated systems to enjoy profits and avoid heavy losses.

Final Words

Finally, one thing to keep in mind while using trading technology is the fact that you don’t have to be an expert from day one. There are a lot of platforms and tools that are easy to navigate and you can start from there. Keep it simple while you are learning and you can move on to the advanced tools after gaining some experience.