The Role of Artificial Intelligence in Forex Trading: Can AI Replace Traders?

There has recently been a report by the UK Department of Education saying that between 80% to 90% of all students in Britain use artificial intelligence for their homework assignments. What is the relationship of these statistics with the forex market? Well, interestingly enough about the same percentage of traders use automated trading in the forex market for their trading activities. 

This figure has been reported by the European Exchange Commission indicating that up to a maximum of 90% of all trades in the forex market use some form of automation for the trading process and making decisions for trading. 

This is a good setup for what we are going to talk about in this article. We want to see just how much of trading in the forex market is done with the help of artificial intelligence. We will also discuss the relationship between automated trading and AI. Ultimately, we want to see if AI will be able to take over traders in the forex market. 

How AI and Automated Trading Have Changed Forex?

First things first. Let’s define AI in forex and see how it has affected forex trading. 

The term AI or artificial intelligence is thrown around a lot to talk about so many different things and refer to so many different tools. So what makes up AI in forex? 

Artificial intelligence can refer to a broad variety of automated trading tools and software that have been around for a very long time. So, there isn’t a clear line that can define an AI tool. Why? Because all the AI tools that we have available now are known as narrow AI which means they execute tasks based on their algorithm and training. 

So if we consider artificial intelligence as such, even the basic tools that have been in use for decades can be some form of simplified and early AI. But of course, now we have much more advanced and complex AI systems and tools in the world of trading. 

We are going to talk about some of these tools and show you the use of AI in forex in the next section. But for now, let’s see how the forex market has changed due to the use of such tools. 

It is an undeniable fact that the use of automation and any form of AI, simple or complex, in the forex market has changed this financial market forever. There is a reason why forex has a daily trading volume of more than $7.5 trillion. This kind of number is simply not seen with any other financial market. 

There are different reasons that play an important role in this regard. But no one can deny the role of these tools. They have allowed for a simpler trading process, around the clock nonstop trading, and basically no need for a manual trader to sit behind the computer and make trading decisions. 

With that in mind, let’s see some AI tools, what they do in forex, and if one day they will replace traders for good. 

How AI is Used in Forex Trading?

There are many different ways that AI is used in forex trading. Similarly, there are so many different types of tools that use AI in one form or another. Here are some of these tools: 

1. Automated Trading (Algorithmic Trading)

Of course automated trading tools fit in this category easily. This is because they can work on their own and make decisions according to an algorithm. 

So this is a fundamental and basic form of AI where we have an algorithm behind the decision making process of a tool. There are so many different kinds of these tools, but perhaps the most well-known are expert advisors or EAs. 

2. Predictive Analytics and Market Forecasting

One of the best uses of AI is data analysis. This task can be too difficult for human traders. But AI tools can do this easily. So essentially an unlimited amount of these data can be fed to AI tools and they will analyze them easily. 

This is what predictive AI tools can do. 

They go through these data instantaneously almost and provide us with the forecast that can be derived from the data. 

In this way, you don’t have to go through a lot of boring data and try to find the patterns yourself. AI will do it for you. 

3. Sentiment Analysis

Another huge use of AI in the forex market is the analysis of user and trader sentiment. 

Think about it for a second. This is something that is almost impossible to do for a human trader. But artificial intelligence can go through news, social media posts, reports, user movements, trading volumes, etc., just to find out the overall sentiment of traders. 

This is extremely important. Because as you might know, sentiment plays a serious role in market movements and the formation of trends. 

4. Risk Management

Another amazing application of artificial intelligence is simply risk management. 

There are many ways in which AI can help you with risk management. For instance, there are AI tools that can set up stop loss levels for you or calculate the size of positions according to various factors. 

So they take in all the factors that you wouldn’t even see otherwise and then use all of those in order to calculate the most ideal size for each of your positions. 

There are also AI tools that can predict and calculate market volatility, trend reversals, etc., all of which directly relate to risk management. 

Advantages of AI in Forex Trading

Artificial intelligence and its tools have provided forex traders with so many advantages that trading without them is simply impossible these days. Here are a few of these advantages. 

1. Speed and Efficiency

Our brains are sort of like general AI. Yeah that is a very good description for the human brain. It can do so many different things at the same time. 

But the thing about AI is that our AI systems, as we mentioned before, are narrow systems. 

What does it mean? It means these AI systems are extremely good at doing one thing. 

So for example, if an AI system is developed to analyze price movements of a currency pair in the forex market and compare them with historical price movements, it can analyze millions of bits of data in a matter of seconds. This is simply impossible for the human brain. 

So the speed and efficiency that we can get from AI systems are simply not even comparable with human trading. 

2. Emotion-Free Trading

There was a famous study done back in the 1960s in the US that proved humans attribute human emotions to robots. 

Let that sink in for a second. 1960s. That’s like 60 years ago. Way before we had ChatGPT or Gemini or even the hard-question-evading Deep Seek! 

We would like to think that AI systems have emotions. Why? Because we do. Humans are extremely emotional creatures. We use our emotions for decision making all the time. 

But the thing about AI is that no AI system is capable of emotions. And that is their advantage. 

In the world of trading and the forex market, AI trading tools are able to offer us emotion-free trading. This means, trades and trading decisions are never impacted by human emotions when we trade with the help of these systems.

3. 24/7 Trading

We suppose that we don’t really need to tell you that AI doesn’t sleep! 

And that is exactly what you will get with AI tools. We get non stop trading with these systems so that no opportunity in the market will ever be missed. 

4. Backtesting and Strategy Optimization

Another advantage of AI systems is that they can directly allow you to backtest and optimize your trading strategy or even automated trading tools. 

You see, conventionally, there are tools for backtesting such as the Strategy Tester feature of the MetaTrader trading platform. But recently some AI tools are being developed that are able to seamlessly test a trading strategy against historical market data and make improvements. 

Limitations of AI in Forex Trading

So far we’ve been talking about the good sides of AI. Let’s badmouth it a little bit! 

That’s right, as perfect as it might seem, no AI system is completely without fault or drawback. So here we want to talk about a few of the limitations that current AI trading systems face. 

1. Lack of Human Intuition

You know AI systems can be great at fast and huge calculations, analysis, and quick reactions. But the thing about financial markets is that sometimes nothing can beat human intuition. 

This doesn’t happen all the time, but when it does it’s pretty huge. 

Let’s have two great examples from 2008 and 2015 where AI and algorithms failed. 

2008: the crash of the housing market was not forecasted by any algorithm or AI system. According to all indications everything was going smoothly. But the intuition of a handful of economic geniuses predicted the collapse of the housing market and mortgage bonds. So they shorted or bet against these bonds and in the end made billions of dollars. Isn’t that amazing? The whole global market crashes and because of human intuition, not algorithm, some people are able to make billions. 

2015: another example can be seen in the Swiss Franc crisis. And this is much more recent when we had much more advanced systems and tools. But again no algorithm or AI system was able to even remotely predict what happened with the Swiss National Bank or the whole SNB disaster that led to serious losses. 

2. Dependency on Quality Data

Any AI system is basically only as strong as the data that it received for trading. It begins from the very conception of the AI system. Developers use so-called datasets to train the AI according to the function that they want. After that the AI system will need to be constantly exposed to new and relevant data to be able to remain relevant itself. 

In plain English? AI systems eat data all the time! That’s how they are able to survive and provide their service. So without high quality, delicious data, they can’t function properly. 

3. Risk of Technical Failures

Come on let’s face it, at the end of the day any AI system is basically just like any other service that you receive over the internet and through the devices that we use, whether they are computers, laptops, phones, etc. 

This means AI tools and systems are also at the mercy of technical failure. 

Can AI Completely Replace Human Forex Traders?

What do you think? Obviously the answer is a huge yes! 

Of course they can replace human traders. Maybe not right now. But definitely in our lifetime. 

With the rate of AI development, it might even be less than 10 years from now. Or 5. Who knows?

The fact of the matter is that AI systems are extremely powerful at data analysis, trend identification, and trade execution all in a blink of an eye. 

It is also a fact that a general AI system will emerge sooner or later. So combine the amazing features of narrow AI systems that we have now with the emerging general AI and the translation is a super human brain that has never existed. This way you get the advantages of AI and the intuition of a human brain. 

So will AI completely replace human traders? Of course they will. Not right this second. But definitely in the near future. 

Final Thoughts

Artificial intelligence has uprooted almost every aspect of our daily lives. From education to finances. It is truly an AI revolution. This revolution is of course taking place in the world of trading as well. 

There are countless AI tools and systems that help with different aspects of trading in the forex market. In this article, we discussed the role that AI plays in forex trading and discussed whether AI will be able to replace traders.