Fx-spot predictions with state-of-the-art transformer and time embeddings

Abstract

The transformer architecture with its attention mechanism is the state-of-the-art deep learning method for sequence learning tasks and has achieved superior results in many areas such as NLP. Utilizing the transformer architecture for the prediction of sequential time series such as financial time series has hardly been investigated in previous studies. In this research paper, the transformer architecture with time embeddings is used in foreign exchange (FX) trading, the world’s largest financial market, and tests its suitability. A systematic comparison is made between transformer and benchmark models. It also examined which influence multivariate, cross-sectional input data have on the forecasting performance of the various models. The goal of the paper is to contribute to the empirical literature on FX forecasting by introducing a transformer with time embeddings to the forecasting community and assessing the accuracy of corresponding models by forecasting exchange rate movements. Empirical results indicate the suitability of transformer models for FX-Spot forecasting in general but also evidence the need for transformer models for multivariate, cross-sectional input data to outperform other state-of-the-art neural networks such as LSTM.

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