What the Evolution of Fully Automated Forex Execution Systems Means for the UK

Foreign exchange trading, or forex, is one of the biggest economic forces in the global economy – and the UK is arguably its world leader. Although some might consider it the realm of Canary Wharf city types, Reddit finance bros and Wall Street titans, the recent expansion of fully automated forex trading and retail trading mobile apps has opened up the market considerably. There is now around $9 trillion traded on forex markets daily and the UK accounts for around 35% of global trades. That’s a massive $4.7 trillion, per day.

The scale of that is quite hard to fathom. There are some 341,000 registered forex traders in the UK, and a significant chunk of those are businesses that employ multiple people. On the other hand, 10% to 20% of the market in the UK is now retail traders. Although estimates vary, somewhere between 50% and 70% of forex trades are estimated to be at least partially automated. These two factors, increasing access for retail traders and the swift rise of forex automation, has the sector at a crossroads.

Why Automated Trading is Now the Standard in the UK and Worldwide

For those unaware, forex, at it’s most basic level, is trading international currencies at the right time to make a profit. This has been going on for literally thousands of years. Although an ancient coin trader in Mesopotamia and a modern forex trader in a fancy City of London flat would have little in common outside of that core principle.

To fully explain forex trading’s key ideas in a short article such as this would be futile. As a novice, watch five minutes of a forex YouTuber and be prepared be bamboozled by candlesticks, differentials, liquidity order, breakout levels and slippage.

For the purposes of this piece, what you need to know is automated forex trading is the new standard. Automated trading uses pre-programmed rules to buy, sell and swap currency positions without any human input or intervention after the initial setup. With profits often hinging on microsecond levels of speed and precision across multiple trades, manual trading is now more difficult than ever.

The first automated trading systems debuted in the late 90s and early 2000s, but were prohibitively expensive and complicated for most. So, they were only available to financial institutions. The market truly began to open up with forex software for modern PCs and then smartphones or tablets.

Today, fully automated forex execution is used by trading firms and individuals across the UK. In fact, some kind of automation is basically essential to keep up with the almost unbelievable size and scale of the forex trading market.

Just some of the things that automated forex trading systems can typically be programmed to factor into trades include:

• Price action
• Trading volume
• Time of day
• Momentum indicators
• Risk limits
• Differentials

Increasingly, systems are incorporating AI technology that can scan financial market news and (in theory) react to central bank announcements, monetary policy changes or global political or economic events far faster than a human could.

The UK’s Fintech System Continues to Spur Innovation

The UK has been among global innovators in the forex space for decades. UK operators involved in designing and delivering algorithmic forex trading now make billions of pounds a year. The UK’s Financial Conduct Authority is considered a globally-respected regulator in the market.

It ensures that human oversight and risk management remain integral to the market. The FCA also runs a Sandbox system that allows companies to test out new systems, automation and AI trading in a test environment where it can monitor them for regulatory or compliance issues before they go to open market.

Full coverage of low latency internet connectivity, the proliferation of so-called Tier 1 liquidity providers (big financial firms with deep pockets) and a highly educated workforce in computer science and finance, has led to London’s cemented place as a global forex hub.

For example, consider Paresh Davdra. Born to immigrant parents in Harrow, North London, as a student in 2005 Davdra started an online Forex trading platform from his laptop in a rented flat in Brighton. After being rejected for a business loan, he borrowed £20,000 from the bank to buy a car and then sold it pay for his startup costs. Today, Davdra is a billionaire. 

That’s just one example of the many tales of moon-shot success from the UK forex market. But, there are also lots of people who fail.

The Risks and What the Government’s Regulation Covers

As you might expect, forex automation effects the disparity between institutional traders and retail traders. Without making use of any kind of automation, retail traders are at a massive disadvantage against the cutting edge algorithms employed by City traders. Which is demonstrated in the much higher loss rates for retail forex traders than institutions.

Even with automation, forex trading is far from as simple as money printer go brrr. Traders still have to set up the algorithm and tell it what to monitor. Bad inputs can only exacerbate bad outcomes, and market volatility can surprise some automated systems without considered setup.

Setting up careful stop losses, exposure limits and other methods of halting bad trades before they spiral out control  is as important for new retail investors as it is huge financial institutions.

In the past, big banks and financial firms have literally lost hundreds of millions or even billions from the mistakes of sole traders who failed to use the technology correctly.

Although the UK is a pioneer and a world-leader in the forex sector, which contributes significantly to the economy, the FCA ensures oversight and careful risk management remain an integral part of the market.