How Machine Learning Can Help Reduce Foreign Exchange Risk

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Within the next 12 months, a third of businesses plan to use artificial intelligence (AI) to expand their operations. In the world of big data, AI is more important than anywhere. The ability of machines to continuously monitor constantly changing data sets helps to mitigate the risk of human error and works to find the objectively best solution to a problem. While AI may not change the world of human interactions such as social care and customer service, it vastly outperforms humans in mathematical tasks. In the world of foreign exchange, whether using blockchain technology or traditional currency, machine learning can reduce the risk of currency fluctuations.

How AI Deals in Currency

Investing in foreign exchange is a complicated and time consuming process. It involves considering many factors simultaneously in order to arrive at the most profitable decision. For human beings, achieving a perfect result involves an impossible level of brain power.

However, intelligent software engineers are able to create algorithms which can perform many calculations at once. These can then constantly monitor the value of different currencies and decide when to buy and when to sell. Machines are able to learn through studying past trends and continuously updating its decision making process. Once it has figured out how various factors affect the value of a currency, the machine is then able to make predictions about the future.

This doesn’t entirely take the role of humans out of the process. Humans are still required to build the software and to regularly check if it works, performing alterations where needed. However, it does mean that human error caused by subjective factors such as personal opinion or exhaustion is completely taken out of the equation.

What’s the Risk?

When it comes to foreign exchange, small businesses dealing with currency risk are concerned about the high costs of fluctuating currencies. By properly managing these risks, a business can ensure high profits, without needing to pass costs onto customers. Small businesses often can’t afford to absorb these costs, so should invest in AI up front to limit any potential damage.

If a currency depreciates, then the value of assets and investments could also decrease. When dealing in foreign trade, the value of domestic currency compared to the currency of the country you’re trading with determines how much profit you make. If a currency suddenly drops in value, then a business could end up making a loss.

For instance, when the UK voted to leave the European Union, the price of the Pound experienced a sharp drop against the Euro. Experts predict that by 2019, business investments will be 25% lower than they were forecast to be before the EU referendum. This lower investment reveals a culture of risk aversion when currencies depreciate.

Similarly, heavy investment in cryptocurrency in 2017 by businesses and individuals alike revealed how much risk is involved. Those who invested in Bitcoin in January may have seen profits of $19,000 within a single year. However, if you invested in December, then you would have paid $20,000 for something worth less than $6000 by February.

The Benefits of an AI Advisor

Cryptocurrencies reveal the importance of algorithms and computers in today’s foreign exchange market. While traditional currency can be manipulated by politicians and bankers by printing money or increasing interest rates, this isn’t possible with open source currencies. For example, bitcoins are ‘mined’ by individual users and there is no central authority.

In both the cryptocurrency and traditional currency worlds, subjective judgements are the main cause of risks. Building a machine which can analyse objectively and constantly update according to what the data tells it is the best way to reduce this risk. Human time and energy can then be redirected to more appropriate tasks.

Whether you are investing in currency directly or simply trading internationally, the foreign exchange market affects you. Currency increases can be profitable, but there is always a risk that depreciation could hit your company hard. Reduce the risk of human error by embracing AI. Within a few years, any foreign exchange company which has succeeded in integrating machine learning into their investment practices will have a major advantage over competitors.

About the Author

Jackie Edwards is a freelance researcher and editor. After taking a career sabbatical to become a mother, Jackie now writes full time on topics ranging from health and wellness, right through to news and current affairs. In her spare time she volunteers for a number of local charities that support people with mental health issues.


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  1. That’s the great information about Machine learning. Definitely, exchanges need to make use of this.