Programmed Forex Trading

Virtually every Forex trade uses some computer programming. However, large banks that trade Forex will be moving a large part of their work to almost total programmed Forex trading. According to The Wall Street Journal the recent Forex scandal is driving banks to get rid of troublesome traders and rely much more strongly on programmed Forex trading.

After paying billions in fines to settle allegations that traders tried to rig a key currency benchmark, banks are increasingly turning to computer programs to carry out foreign exchange trades.

In an industry traditionally dominated by human traders placing orders by phone, the rise of trading algorithms has accelerated after a global probe into currency trading. Behind the shift is banks’ desire to shield themselves from any future misconduct by traders, and reduce the risk involved in handling some currency trades, according to bankers.

As of a year ago programmed, algorithmic, trading accounted for a tenth of all trades. That figure will double or triple this coming year. How do private traders deal with programed Forex trading? Is totally programmed Forex trading something that you should consider for yourself?

Fighting the Algorithms

A couple of years ago we wrote about algorithmic Forex trading.

Algorithmic Forex trading is a logical result of combining technical analysis with computer programs. After all, if you always make the same trade under the same circumstances so why not program the computer to make the trades? In algorithmic Forex trading the computer follows the price of one currency pair versus another. It tracks any data that you want it to track and then makes trades under the circumstances that you tell it to in the programming.

If you tell the program when to start and when to stop and when to get out if there are problems algorithmic Forex trading takes fear and greed out of the picture and could lead to nice profits.

The drawback for private traders in this scenario is that computer processing speed is of utmost importance. If you come in second in placing an order because Deutschbank got there first it could spell the difference between profit and loss.

What Are Your Options?

If you cannot compete with the likes of Bank of America in computer processing speed what are your options. One way to deal with programmed Forex trading is to stay out of it and only deal in Forex options.

Options trading allows a Forex trader to make money without ever buying or selling a foreign currency. What that trader does is buy, or sell, an options contract. The trader carries out fundamental and technical analysis and believes that the price of his or her options contract will go up in the near future. When the underlying currency pair performs as anticipated the Forex options trader exits his or her position by making the opposite trade. The trader receives payment in the options account without ever buying or selling US dollars, Yen, British Pounds, or Euros.

Trading Forex options allows you to avoid the speed problem when engaging in programmed Forex trading versus the pros. And Forex options limit your risk while providing trading leverage. As the large Forex operations go to programmed Forex trading consider options instead.