The term "AI trading" is somewhat broad, not least because it can cover several aspects of automated trading. In its most basic form, AI trading typically refers to the buying and selling of assets without human interaction. Instead, the underlying software trades on your behalf - based on the terms for which it was programmed.
For those who don't know, the overarching concept of AI is that it is able to analyse millions of potential scenarios in a split second. It does this by evaluating large chunks of historical data and then making a decision based on the information at its disposal.
Although large financial institutions have access to some of the most advanced AI trading robots, they keep the underlying software highly protected at all times. This prevents their "secret sauce" from falling into the wrong hands. As a result, retailers have little access to the same AI trading algorithms as their institutional counterparts.
That being said, there are a number of online platforms that allow you to trade in an automated way. While these are not as advanced as the AI bots held by financial institutions, they at least allow you to trade automatically - virtually without having to buy and sell assets manually.
How does AI trading work?
Now that you have an overview of what AI trading actually is, let's explore how the phenomenon works. In a nutshell, AI trading focuses on a predefined algorithm that is able to place trades autonomously - with decisions based on historical data. As we briefly mentioned in the section above, financial institutions have some of the most advanced AI trading bots in the industry, consistently outperforming the markets.
In retail, however, you don't have access to a robot as competent as what the institutional arena has. Instead, you buy a software-based trading algorithm that someone else has developed. The underlying software is developed on a what-if basis, meaning that the technology executes trades when certain conditions are met.
Let's look at a quick example to clear the fog.
Example of an AI trade
here is good explanation from trade-exness - "สมมติว่าคุณซื้อหุ่นยนต์ AI ที่เชี่ยวชาญในการซื้อขายฟอเร็กซ์. ซอฟต์แวร์ได้รับการตั้งโปรแกรมให้สั่งซื้อสินค้าในคู่ forex ขนาดใหญ่ใน โหลด mt4 exness เมื่อระดับ Fibonacci retracement ถึง 61.8%. ด้านล่างเราได้ระบุกระบวนการ what-if บางส่วนที่หุ่นยนต์ AI สามารถดําเนินการได้."
"Suppose you buy an AI robot that specialises in forex trading. The software has been programmed to place a buy order on a large forex pair when the Fibonacci retracement level reaches 61.8%. Below we have listed some of the what-if processes that the AI robot could execute."
- GBP / USD reaches a Fibonacci retracement level of 61.8%.
- This means that the what-if condition of the AI robot is met.
- Therefore, the bot places a buy order for GBP / USD.
- The bot also installs some stop loss and take profit orders.
- The bot is instructed to close the trade when GBP / USD increases by 45 pips.
- It is also instructed to close the trade when GBP / USD decreases by 10 pips.
- 2 hours after placing its trades, GBP / USD increases by 45 pips, so the trade is closed.
As you can see from the example above, the AI trading bot was able to place a number of orders without having to do any hard work. In fact, the bot not only scanned lots of historical data on GBP / USD, but was also ready to pounce on All major currencies. As such, this example shows how powerful a well-programmed bot can be when designed properly.
