mlsanityData to 14 Oct 2026

Decomposable Reward Modeling and Realistic Environment Design for Reinforcement Learning-Based Forex Trading

arXiv 2604.00031 ↗First posted 20 Mar 2026q-fin.GN cs.LGcited by 0

On the map: LLM alignment / RLHF / preference optimisation → Reward modeling and RLHF

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Abstract (arXiv)

Applying reinforcement learning (RL) to foreign exchange (Forex) trading remains challenging because realistic environments, well-defined reward functions, and expressive action spaces must be satisfied simultaneously, yet many prior studies rely on simplified simulators, single scalar rewards, and restricted action representations, limiting both interpretability and practical relevance. This paper presents a modular RL framework designed to address these limitations through three tightly integrated components: a friction-aware execution engine that enforces strict anti-lookahead semantics, with observations at time t, execution at time t+1, and mark-to-market at time t+1, while incorporating realistic costs such as spread, commission, slippage, rollover financing, and margin-triggered liquidation; a decomposable 11-component reward architecture with fixed weights and per-step diagnostic logging to enable systematic ablation and component-level attribution; and a 10-action discrete interface with legal-action masking that encodes explicit trading primitives while enforcing margin-aware feasibility constraints. Empirical evaluation on EURUSD focuses on learning dynamics rather than generalization and reveals strongly non-monotonic reward interactions, where additional penalties do not reliably improve outcomes; the full reward configuration achieves the highest training Sharpe (0.765) and cumulative return (57.09 percent). The expanded action space increases return but also turnover and reduces Sharpe relative to a conservative 3-action baseline, indicating a return-activity trade-off under a fixed training budget, while scaling-enabled variants consistently reduce drawdown, with the combined configuration achieving the strongest endpoint performance.

Key facts. No citing papers in the map yet (data through 14 Oct 2026). Placed in Reward modeling and RLHF, one of 10 directions in LLM alignment / RLHF / preference optimisation. Builds on 12 of its 47 references that are in the map. First posted on arXiv 20 Mar 2026.

Builds on

12 of 47 references.

References · 12

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  3. 2015Deep Reinforcement Learning with Double Q-learningcited by 1,745
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  8. 2020A Closer Look at Invalid Action Masking in Policy Gradient Algorithmscited by 171
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  10. 2020FinRL: A Deep Reinforcement Learning Library for Automated Stock Trading in Quantitative Financecited by 87
  11. 2020An Application of Deep Reinforcement Learning to Algorithmic Tradingcited by 30
  12. 2025Deep Reinforcement Learning for Automated Stock Trading: An Ensemble Strategycited by 15

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  1. 2026Realistic Market Impact Modeling for Reinforcement Learning Trading Environments
  2. 2025A Risk-Aware Reinforcement Learning Reward for Financial Trading
  3. 2025FR-LUX: Friction-Aware, Regime-Conditioned Policy Optimization for Implementable Portfolio Management
  4. 2026Trade-R1: Bridging Verifiable Rewards to Stochastic Environments via Process-Level Reasoning Verification
  5. 2025Right Place, Right Time: Market Simulation-based RL for Execution Optimisation
  6. 2023Towards Generalizable Reinforcement Learning for Trade Execution
  7. 2024Robot See, Robot Do: Imitation Reward for Noisy Financial Environments
  8. 2025Safe and Compliant Cross-Market Trade Execution via Constrained RL and Zero-Knowledge Audits