In forex trading, foreign exchange utilities such as the Correlation matrix analyzer are more often than not overlooked. But by quantifying the correlation between currency pairs, they can reduce portfolio risks significantly. Just 12% of retail traders employ such tools regularly, according to the Bank for International Settlements’ 2023 report. But the average annual return volatility (standard deviation) of these users is 38% lower than that of non-users. For instance, the Copula model of MATLAB shows that diversified investment efficiency drops by 59% if the correlation coefficient of EUR/USD and GBP/USD is greater than 0.85. In 2022, UBS lowered the pullback ratio in its euro trading portfolio from 14.3% to 7.1% through dynamic position allocation.
Another overlooked forex tool is the Volatility Cone, which applies the distribution of historical volatility to forecast the probability of extreme market conditions. Take USD/JPY, for example. If, currently, the 30-day volatility is 6.8% and the conical chart shows that the 90th percentile is 12.5%, then there’s a 10% probability that the market will break the level. When the Turkish lira fell 15% in a single day of trading in 2023, investors who carried the volatility cone reduced their exposure to 5% of their capital in advance, with median loss prevention of $8,200 per account, whereas other investors who lacked it lost an average of 21%.
Although order flow analysis software is mostly used in the futures market, no value is placed on the work of such software in tracking foreign exchange liquidity. During the flash crash of the pound in 2016, CQG’s “Deep Market Data” forex software identified the liquidity shortfall 17 seconds ahead (sell volume of the order book decreased severely by 83%), and the user losses that triggered auto stop-loss orders decreased by 74%. After MetaTrader 5 added the order flow module in 2022, users’ accuracy for predicting breakthroughs at the key support/resistance levels increased to 63% (though technical analysis is still only 49%).
The summer time converter may be a simple one but can save the risk of misinterpreting trading hours. When European Daylight Saving Time moved in March 2023, with those traders not using this forex tool, 23% saw their stop-losses triggered prematurely or slippage increased due to the discrepancy between the platform time and the timing of true economic releases (e.g., the non-farm payroll report being released an hour ahead of schedule). The losses of FXCM’s “Time Synchronizer” tool users due to such issues fell by 89%, whereas the news trading winning rate increased by 31%.
Compliance scanning tools are essential in evading black platform threats. CySEC figures in 2022 show that the likelihood of investors using forex tools such as BrokerCheck to be defrauded by unlicensed brokers dropped from 7.3% to 0.9%. A German investor found out through this tool that leverage on a specific platform was over 1:30 as governed by the EU MiFID II (in fact, 1:500), saving a loss of 120,000 euros.
Voice Analytics tools in the speeches of central bank governors are yet to come in vogue. Reuters’ “SpeechInsight” forex tool takes policymakers’ intensity of confidence on tone frequency (Hz), speech rate (words per minute), and pause duration (milliseconds). In Federal Reserve Chair Powell’s 2021 speech, the tool discovered that his average speech rate slowed by 22% (an indicator of anxiety), EUR/USD dropped by 1.2% within 15 minutes, and the mean rate of return of responding traders was 0.8%.
The calculator for holding costs is able to optimize the overnight interest strategy. When the overnight cost of shorting AUD/JPY is -0.12%, the daily cost of carrying 100,000 lots would be $1.2. But by comparing the rates of multiple brokers using tools, the users can reduce the cost to $0.8, and save $146 annualized (which is a 4.3% increase in return at 30 times leverage). Statistics. IG Group data. In. 2023. The percentage. Of. Overnight. Trades. By. Users. Utilizing. Such. Tools. Increased. From. 11%. To. 29%,. And. The. Average. Annual. Compound. Interest. Effect. Grew. By. 1.8.
Traders who utilize the aforementioned “invisible” forex tools based on a Greenwich Associates study are more likely to survive three years at 71% compared to those that use solely traditional tools with a survival rate of only 39%. Although these tools have not been widely publicized, they offer excess risk control and return capture capability at a cost 83% below the industry average.