The foreign exchange, or forex, market is the most liquid market in the world, with a global value of $2.4 quadrillion in 2020. It facilitates the trading of currencies between various market participants, and while it is high risk, it can also bring high returns.
Over the course of time, mass globalisation and technological advancements have led to an increase in the way that big data and premium analytics are used in the forex market, as traders look to gain that all-important trading edge.
What is Predictive Analytics?
Predictive analytics refers to the use of data, statistics and other machine-based modelling techniques that use current and historical data to identify and determine future market trends. It is a tool that can be used to predict events and outcomes from across different sectors, including in healthcare, marketing, as well as meteorological studies, such as the weather forecast.
In the liquid and fast-moving world of the financial markets, any form of technique which helps to predict future price movements can act as a highly useful tool, in terms of making better and more successful trading decisions.
When you become a stockbroker a key part of becoming a success in the markets is by best utilising the resources available to you at any given time. This is where predictive analytics comes into play, as it presents data patterns which can help give businesses and investors the opportunity to benefit from possible market movements or future events.
What is Big Data?
In simple terms, big data can be defined as a proliferation of data on a mass scale. It typically uses increasingly complex technology in order to collect, process and analyse both structured and unstructured data. There is generally no limit to its capacity, with data sets continuing to grow to truly enormous sizes.
For example, in 2018, more than 2.5 quintillion bytes of data were created on a daily basis. However, by 2025, it is estimated that there will be around 175 zettabytes of data in the global datasphere, which equates to roughly one trillion gigabytes.
3 Key Advantages of Big Data and Predictive Analytics
The potential benefits associated with predictive analytics are yet to be fully realised within the financial sector. This is because the process is constantly evolving, with new and more advanced tools emerging all the time.
When the question of how to become a stockbroker arises, often the matter of using statistics to analyse market trends is surprisingly overlooked. By tapping into this resource, predictions can be made about almost anything, through focusing on previous trends, patterns and trader behaviour. This, in turn, reduces risk.
- Time Efficiency
Due to its high liquidity and decentralised structure, the forex market is traded over-the-counter 24 hours per day, 5 days per week. As a result, knowledge is power when it comes to exchanging one currency for another. Indeed, a successful strategy is based on building the right foundation and taking full advantage of the tools at your disposal – quickly and efficiently.
Predictive analytics can be a valuable mechanism for stockbrokers, especially in scalp trading, when positions are obtained and held for a short period of time, before closing for a small profit. Here, up-to-date, real-time information is of great importance for those requiring quick answers, in relation to possible short-term trends. A failure to act swiftly can potentially be ruinous for the broker, as well as the trader.
- Less Risk
The analysing of big data invariably offers up an added layer of protection in terms of risk management for brokers and traders alike. While it is certainly not without fault, the use of predicted outcomes arising from analysing data sets serves as an extremely useful toolkit for studying future or expected patterns, based on previous decisions or results.
Of course, anomalies occur, and the forex market is a volatile one. Despite this, predictive analytics means that stockbrokers can draw on a vast catalogue of historical data, prior to acting or making big market decisions. Through embracing the capability of statistical analysis, market participants can be more effective, while reducing risk at the same time.
- Rational Thinking
Trading psychology forms a major part of the forex market landscape. It refers to the emotional and mental state of mind that market actors endure when trading currencies. The emotional component of a trader’s decision making can significantly affect the trades they make, be it the amount or volume traded, scheduling, or the length of time between the opening and closing of a position.
In this case, big data and predictive analytics can play a critical role in rationalising the decision making process. By introducing numbers and statistics as part of a data-led approach, technical analysis can be useful for identifying trends for buying and selling opportunities. It can also improve market moves by simply educating a trader, with the added knowledge gained by studying previous data being of undeniable benefit to them.
Conclusion
Big data and predictive analytics has a significant role to play in terms of helping forex brokers, traders and investors. If utilised correctly, it can contribute to better decision making, improved efficiency and a reduction in risk. In a world where everyone is trying to get the edge over their competitors within a competitive marketplace, it can be an effective weapon in the arsonry of any market participant.
