Wale Edun, minister of finance and coordinating minister of the economy, said recently that the Federal Government would in the near future automate transactions in the entire foreign exchange market to tame wide arbitrage and punish naira speculators.
“Foreign exchange market will be simplified and reformed such that all legal and legitimate transactions will fall within the purview of the authorities and in the formal foreign exchange market. Anything outside that will be illegal, a criminal offence, and will be punished,” Edun said.
Since that pronouncement by the minister, many financial market players have been in a ‘watch and wait’ mode, particularly for a framework for the digitalisation of FX transactions.
FX trading automation is the trading automation applied to the Forex market. With trading automation, all or some of the trading tasks are performed for you by software running on a computer system.
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One important benefit of FX trading automation is that it reduces the pressure on treasurers to prove that they have gone with the best available execution price when carrying out their FX trade.
The FX market is the biggest and the most liquid financial market in the world. It boasts a daily volume of more than $7.5 trillion as of 2022, according to a Bank for International Settlements survey.
What is automated trading?
Automated trading uses a pre-programmed algorithm that decides what and when to buy and sell assets, depending on the instructions written in the code. Unlike manual trading, the decision to buy or sell is made by the bots or software and not the trader.
Automated FX trading accounts for an ever-growing share of daily trading. The evolution of machine learning and artificial intelligence has accelerated this trend, which trails equity trading, where automated trading accounts for over 80 percent of all transactions.
Trading in this market involves buying and selling world currencies, taking profit from the exchange rates difference. FX trading can yield high profits but is also a very risky endeavour.
Automation is one of the most talked-about topics in treasury today – for good reason. For FX trading, large corporates want an automated, end-to-end process that covers the uploading and execution of a hedge, export of the results to other internal systems and confirmation matching with their banks.
An intraday FX trader, for example, who trades manually will analyse a list of different currency pairs and use indicators and other tools to determine their next move. On the other hand, an intraday FX trader who automates their trading strategy will rely on robots to act on a trade based on predetermined instructions.
Read also: Naira speculators in trouble as FG moves to digitise FX transactions
You use a system that is configured to analyse currency price charts and market activities. Once it identifies key trading signals such as unstable price patterns, trading is executed automatically.
Using automated trading software, you can set criteria that will determine your trade’s entry and exit points. You’re basically telling the system to execute a trade if and when specific points of entry and exit are satisfied.
