Attack of the Machines: Computers Looking to Replace FX Traders

by on February 18, 2014 8:41 pm BST

Forex traders are potentially being replaced by computers as global probes of the foreign-exchange market are giving the industry a black-eye. The transition to technology will aid in the reduction of costs, too.

According to Aite Group LLC, electronic dealing increased to 66 percent of all currency transactions in 2013 compared to only 20 percent in 2001. The consultant group, which reviewed data from the Bank of International Settlements, say forex spot trading will be electronic by 2018.

The transition to more technology will help lower costs for clients and, potentially, aid in price transparency. However, it could squeeze bank’s margins that are already slender in the forex space. According to Christopher Wheeler, Mediobanca SpA, said “margins are very, very, skinny in foreign-exchange because it’s easy to move onto a trading platform.”

This is a similar scene seen in the early-2000s as floor traders seen their jobs cut due to technological advances in trading. There could be a gradual shift to more technology in forex, but it is not likely to take control anytime soon because the algorithmic equation of the problem lags that seen in other industries. Data shows that algorithmic and quant-based currency funds continue to under-preform discretionary traders. The currency markets are very dynamic and data driven. Humans, so far, have been able to analyze data opposed to a program scanning for key words.

Technology can help the troubled industry, but the shift will hurt job growth and opportunities.