Forex Trading: A.I. Trading versus Algorithmic Trading


With the rise of A.I. in different industries today, it is not a surprise that A.I. will enter the Forex Trading industry as well. A.I. can be trained on huge sets of data via deep learning, and can function as a trader on its own. However, there are many individuals that are using algorithmic trading to pass off as A.I. trading and while they have their similarities, both types of trading are very different from one another. In this post, we will look at the differences and capabilities of each type of trading.

What is being used to make trading decisions?
For A.I. trading, the system is trained on large data sets and historical data. This allows the system to identify patterns and trade on these patterns. Should the market evolve and change, A.I. trading is able to catch on and adapt to those trends. On the other hand. Algorithmic trading used pre-defined rules, usually based on technical indicators / market data to make trading decisions. As the rules are pre-defined, algorithmic trading is unable to adapt to changing market decisions like A.I. trading and might make wrong decisions instead.

Which has a higher barrier to entry?
Broadly speaking, A.I. trading has a higher barrier to entry. This is because A.I. Trading is generally more complex and requires a deeper understanding of Artificial Intelligence. Due to its complexity, it is hard to for A.I. Trading to be transparent, as we are unable to understand how they make trading decisions under normal circumstances. It is also harder to backtest and optimize A.I. trading due to it requiring large amounts of data and computational resources. Algorithmic trading can be transparent, as they are based on pre-defined rules. These pre-defined rules also mean that it is easier to backtest and optimize the trading strategy itself.

Which of the two performs better?
At the time of this writing, A.I. trading is not well developed enough for the commercial trader to use consistently. As such, the performance of A.I. trading can be said to be less consistent than algorithmic trading to a certain extent. However, the potential for A.I. trading to outperform Algorithmic trading is there, as Algorithmic trading is based off pre-determined rules, which are a limiting factor for performance. A.I. trading is also able to adapt to changing market conditions, and with enough machine learning, a bold assumption can be made that A.I. trading will eventually outperform Algorithmic trading substantially.

Which of the two is more costly?
Due to how specialized A.I. related equipment can be presently, A.I. trading systems can be substantially more expensive to develop compared to an Algorithmic trading system. A.I. trading systems require the A.I. model itself to train on historical data and other external factors. Algorithmic trading on the other hand only requires to set the predefined rules correctly for it to begin trading. No one can predict if A.I. trading systems will eventually be less expensive than Algorithmic trading or even replace Algorithmic trading. However, a good guesstimate will be that it is not an unlikely possibility.


In conclusion, there are many fundamental differences between A.I. trading and Algorithmic trading. Exercise your due diligence when something is promoted as an A.I. trading system, and we hope with this knowledge on the differences between the two, you will not be lured into false advertisements that could lose you your hard earned money.

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