Forex trading algorithms are special rules designed to fulfill specific trading tasks and purposes when interacting with the international Forex exchange.
Trading activity in the Forex market through computer programs works on the principle of custom trading algorithms. These are certain trading rules, guided by three parameters:
- Price analysis;
- Time binding;
- The quantity that forms the nature and volume of trading operations of a market participant.
Principles of Application of Forex Trading Algorithms
Over the course of its long history, the foreign exchange market has improved the methods of making trade transactions. Market participants began to use different types of trading algorithms in the Forex market in order to derive benefit and greater profit in foreign exchange transactions.
Profitable Forex market algorithms allow you to form trading processes correctly and balanced. But if a market participant does not evaluate and analyze long-term trades, it will be difficult to achieve success and high profits.
The main types of trading algorithms
Let’s analyze 4 main algorithms for trading on the Forex exchange:
- Algorithm 1: Statistical. It is part of an algorithmic strategy with a set of profitable trading opportunities. A strategic analysis of historical data for a certain time period is done.
- Algorithm 2: Automatic hedging. This strategy forms the rules to minimize the risks of the trader’s capital.
- Algorithm 3: This is a set of strategies to achieve goals that are planned in advance. For example, it can be a decrease in market influences, prompt execution of trade orders.
- Algorithm 4: Direct market access. Its meaning is to optimize trading speed and reduce costs. This strategy allows for algorithmic trading and multiple trading platforms.
Another type of trading algorithms in the Forex market is trading at high frequencies. It has a fairly high frequency of order execution for trading. Trading at high frequencies can be successful by trading with price changes that rise within fractions of a second. At the same time, for this type of Forex trading, you need to have a computer with a powerful processor. Also, the brokerage company must carry out the execution of trade orders at high frequencies.