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Cutting through the hype: Where AI is already making its presence felt in FX<br />
THE POWER AND<br />
POTENTIAL OF<br />
AI CANNOT BE<br />
IGNORED AND<br />
MAY WELL END<br />
UP AS THE MOST<br />
POWERFUL<br />
TECHNOLOGY<br />
IN THE TRADING<br />
TOOLBOX<br />
Gen AI might fully replace the physical<br />
trading function.<br />
“More than 30 years ago when EBS<br />
and Reuters launched the first fully<br />
automated FX ‘broking’ platforms, the<br />
same concerns were expressed about<br />
the demise of the human touch in<br />
FX trading,” he says. “More recently,<br />
automated and algorithmic trading<br />
technologies have also challenged the<br />
traditional FX broker/trader model. Yet<br />
physical trading rooms and traders still<br />
very much exist as our 200,000-strong<br />
network of global trading participants<br />
race to compete in deriving value from<br />
their data,” adds Culiniac.<br />
LESSONS FROM OTHER<br />
MARKETS<br />
will attest.”<br />
CONCLUSION<br />
Culiniac reckons there are a number<br />
Whilst the power and potential of AI<br />
As a non-regulated market there<br />
of lessons FX can learn from how<br />
cannot be ignored - and may well end<br />
are by definition fewer systemic<br />
AI is being applied in other markets,<br />
up as the most powerful technology<br />
safeguards, such as circuit breakers<br />
particularly the application of<br />
in the trading toolbox, Carmody<br />
that provide equities and other<br />
sentiment analysis.<br />
believes there will likely always be a<br />
FINTECH<br />
markets with release valves in the<br />
event of anomalistic situations.<br />
“This means a greater risk of AIgenerated<br />
events and so-called ‘flash<br />
crashes’,” warns Carmody. “The<br />
“AI’s ability to analyse diverse<br />
textual data such as news and social<br />
media posts can help gauge market<br />
sentiment, aiding traders in predicting<br />
need for human engagement at both<br />
a strategic and a tactical level. Culiniac<br />
agrees that despite AI’s transformative<br />
potential in FX trading, it is unlikely to<br />
completely replace human traders in<br />
combination of a lack of regulation<br />
market trends,” he says. “This is often<br />
the foreseeable future.<br />
and vast amounts of source data also<br />
used as an alternate source of market<br />
increases the risk of bad behaviours<br />
probability on equity trading desks.<br />
“AI, while adept at analysing vast<br />
where intentionally inaccurate or<br />
The technology can also be applied<br />
amounts of data and identifying<br />
misleading information is fed into the<br />
in the FX market to understand<br />
patterns, struggles to comprehend<br />
data sphere to influence the market.”<br />
the influence of global economic<br />
context as humans do and may find it<br />
sentiment on currency values.”<br />
challenging to interpret unprecedented<br />
He suggests the FX industry should<br />
In a recent article on the Refinitiv<br />
events or situations outside established<br />
take a cautious approach with respect<br />
website, the company’s head of FX<br />
patterns,” he says.<br />
to the introduction and adoption of AI,<br />
sell-side trading, Bart Joti, suggested<br />
keeping a close eye on oversight and<br />
teams perform better when data and<br />
Moreover, trading involves complex<br />
governance.<br />
AI techniques are coupled with human<br />
ethical and legal decisions that are<br />
insight. He noted that new skill sets<br />
difficult to automate and where human<br />
“The rise of generative AI or Gen AI<br />
are becoming increasingly important<br />
judgement is indispensable.<br />
increases the risk of ‘machine mis-<br />
so that individuals - particularly in<br />
“Furthermore, even as AI becomes<br />
learning’ and resultant confusing<br />
trading and sales roles - can use<br />
increasingly integral to trading, human<br />
patterns, and even the generation<br />
AI and machine learning tools to<br />
oversight remains crucial to manage<br />
of new, non-deterministic patterns,”<br />
make decisions based on market and<br />
risk, ensure accountability, and make<br />
adds Carmody. “This could be<br />
reference data.<br />
decisions when AI encounters unfamiliar<br />
amplified further as more and more<br />
situations,” concludes Culiniac.<br />
counterparties rely on Gen AI - as<br />
While the role of FX traders will continue<br />
“Therefore, the future of FX trading will<br />
the high frequency equities trading<br />
to be augmented by more and more<br />
likely involve a synergistic partnership<br />
segment learned (the hard way) as it<br />
AI-led functions, Carmody reckons it is<br />
between AI and human traders,<br />
matured.”<br />
impossible to predict whether and how<br />
combining their respective strengths.”<br />
70 JULY 20<strong>23</strong> e-FOREX
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