Forex Algorithms Are A Growing Asset Class

Forex trading is difficult.  But trading isn't as difficult as proper analysis.  Large hedge funds, investment banks, and other institutions hire the world's best; nuclear physicists, mathematicians, and still they fail to predict such events.  That's because it's statistically impossible.

So what's an investor to do?  Not investing isn't an option, because of the rapid deterioration of the value of currency.  But technology has progressed a lot in the last 10 years.  Now, there's a good option for investors - automated robotic managed accounts.  In this scenario, the robot (software) makes the trading decisions, the investor just gets the profits!  The idea of a managed account is not new by any means, they've been around for years.   But the idea that it can be done by automated software process - this is an emerging new paradigm.  Why would investors want a robot to do a job that previously was done by humans?  Because given enough time, humans generally fail.  Humans are great at many functions - trading is not one of them.  Or look at it a different way - markets used to be traded in 'pits' by sweaty men screaming trades at each other.  Trading pits are a thing of the past.  The floor of the NYSE is kept open as a mingling location for traders with handhelds - and a spot for new issuers to 'ring the bell' - but all trading is done in a data center, far away from the exchange, all electronically.  Traders can monitor this from their office, from anywhere.  So the markets have changed - investment management has too.

How are robots different than humans?  There are very clear distinctions - it's not similar to the differences between 'systems trading' and 'fundamental trading.'  Robots, are programmed by humans.  As of today, there isn't such a thing as self-replicating robots or Von Neumann Machines:

A self-replicating machine is a type of autonomous robot that is capable of reproducing itself autonomously using raw materials found in the environment, thus exhibiting self-replication in a way analogous to that found innature. The concept of self-replicating machines has been advanced and examined by Homer Jacobsen, Edward F. Moore, Freeman Dyson, John von Neumann and in more recent times by K. Eric Drexler in his book onnanotechnology, Engines of Creation and by Robert Freitas and Ralph Merkle in their review Kinematic Self-Replicating Machines^[1] which provided the first comprehensive analysis of the entire replicator design space. The future development of such technology is an integral part of several plans involving the mining of moons and asteroid belts for ore and other materials, the creation of lunar factories, and even the construction of solar power satellites in space. The possibly misnamed von Neumann probe^[2] is one theoretical example of such a machine. Von Neumann also worked on what he called the universal constructor, a self-replicating machine that would operate in a cellular automata environment.

That means the robots are the result of human effort.  The difference being though, it's possible with robots to test and retest.  In many cases, a rigorous IT approach can be the difference between failure and success.  But with robots, it's possible to test in a demo environment without risking real capital, or with development capital (not client capital).  Of course, these advantages do not imply that it is a fool proof approach.  However, these advantages are a big improvement over human investment managers, who may rely on 'discretion' to decide on trade management.

Left with the decision to invest in an algorithmic strategy, investors are left to do their due diligence on algorithmic investment managers offering their own algorithms.  Many are registered as CTAs, RIAs, and hedge funds.  But still few are offered to the public, being kept in private, used by proprietary trading firms for themselves.  One such CTA is Fortress Capital - a Registered Introducing Broker & Commodity Trading Advisor, Fortress Capital offers algorithmic Forex investment accounts.

There's other options for algorithmic investors, such as buying an algorithm and self-trading it on their own account.  But this poses many other challenges, and a required education course in Forex and related technology.  But the growth of so called 'robo-advisors' in the equity world, seems to also confirm this trend - that algorithms will soon be doing our investment management.  And who are we to argue with results?  The robots are simply competing on a fair playing ground.  Over time, those with the best results will win.  Given all other things being equal - like in any machine vs. human race, given the increase in computing power, and the fact that humans generally deteriorate; over time probably the robots will win.