Risks Involved in Algorithmic Forex Trading (Follow this page and ask your questions http://bit.ly/2IblW9d) There are some downsides of algorithmic trading that could threaten the stability and liquidity of the forex market. One such downside relates to imbalances in trading power of market participants. Some participants have the means to acquire sophisticated technology to obtain information and execute orders at a much quicker speed than others. This imbalance in algorithmic technology could lead to fragmentation within the market and liquidity shortages over time. Furthermore, while there are fundamental differences between stock markets and the forex market, there is a belife that the same high frequency trading that exacerbated the stock market flash crash on May 6, 2010, could similarly affect the forex market. Algorithms may not respond quickly enough if the market were to drastically change, as they are programmed for specific market scenarios. Markets may need to be monitored and algorithmic trading suspended during turbulence to avoid this scenario. However, in such extreme circumstances, a simultaneous suspension of algorithmic trading by numerous market participants could result in high volatility and a drastic reduction in market liquidity. The Bottom Line!!! Algorithmic trading has been able to increase efficiency and reduce the costs of trading currencies, but it has also come with added risk. For currencies to function properly, they must be somewhat stable stores of value and be highly liquid. Thus, it is important that the forex market remain liquid with low price volatility. Many investors are calling for greater regulation and transparency in the forex market in light of algorithmic trading-related issues that have arisen in recent years. On the positive end, the growing adoption of forex algorithmic trading systems can effectively increase transparency in the forex market. Algorithmic trading strategies such as auto hedging, statistical analysis, algorithmic execution, direct market access and high frequency trading can expose price inconsistencies, which create profitable opportunities for traders. However, the challenge that global market participants face in algorithmic forex trading in the future will be how to institute changes that maximize the benefits while reducing risk. #NMBO478

Risks Involved in Algorithmic Forex Trading

(Follow this page and ask your questions
http://bit.ly/2IblW9d)

There are some downsides of algorithmic trading that could threaten the stability and liquidity of the forex market. One such downside relates to imbalances in trading power of market participants. Some participants have the means to acquire sophisticated technology to obtain information and execute orders at a much quicker speed than others. This imbalance in algorithmic technology could lead to fragmentation within the market and liquidity shortages over time.

Furthermore, while there are fundamental differences between stock markets and the forex market, there is a belife that the same high frequency trading that exacerbated the stock market flash crash on May 6, 2010, could similarly affect the forex market. Algorithms may not respond quickly enough if the market were to drastically change, as they are programmed for specific market scenarios.

Markets may need to be monitored and algorithmic trading suspended during turbulence to avoid this scenario. However, in such extreme circumstances, a simultaneous suspension of algorithmic trading by numerous market participants could result in high volatility and a drastic reduction in market liquidity.

The Bottom Line!!!

Algorithmic trading has been able to increase efficiency and reduce the costs of trading currencies, but it has also come with added risk. For currencies to function properly, they must be somewhat stable stores of value and be highly liquid. Thus, it is important that the forex market remain liquid with low price volatility.

Many investors are calling for greater regulation and transparency in the forex market in light of algorithmic trading-related issues that have arisen in recent years. On the positive end, the growing adoption of forex algorithmic trading systems can effectively increase transparency in the forex market. Algorithmic trading strategies such as auto hedging, statistical analysis, algorithmic execution, direct market access and high frequency trading can expose price inconsistencies, which create profitable opportunities for traders.

However, the challenge that global market participants face in algorithmic forex trading in the future will be how to institute changes that maximize the benefits while reducing risk.

#NMBO478

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