It’s not for everyone, unless you’re trading foreign exchange

Tuesday 18th Feb 2020|London

The world of foreign exchange (FX) trading can be an intoxicating place to be. The reason why forex is the largest market in the world is because it empowers everyone from central banks to retail investors to potentially make sizeable profits from currency fluctuations related to the global economy. According to recent research, daily global volumes were topping a scintillating US$5.4 trillion versus some US$84 billion for the equities market. Quite small beer by comparison. Therefore, given the difference in scale it’s no wonder large institutions, corporates and government bodies have active participants in the forex marketplace for so long. However, given the availability of modern technologies providing global access to information, there is now a new kid on the block in the form of the private investor.

Until very recently FX trading was pretty much a closed shop, beyond the realms, or the imagination of the person on the street. However, that’s all changed as more and more increasingly tech savvy individuals are trying their luck in this highly lucrative but potentially risky and volatile marketplace. And interestingly this up tick in new players is not just confirmed to the Generation Z or the millennials, as many silver surfers across the globe are also plugging in and having a go. The great thing about this important shift in behaviour, in part due to new technology, is that there are more than enough hours in a day to trade in this potentially profitable market, even if you are in full or part-time employment. It’s no wonder people are flocking there in their droves.

There are more than 100 different kinds of official currencies in the world, but most international forex trades and payments are made using the U.S. dollar, British pound, Japanese yen, and the Euro. Other popular currency trading instruments include the Australian dollar, Swiss franc as well as the Canadian and New Zealand dollar. But that’s just part of the story and all new participants need to do their homework before they start trading to ensure they don’t lose their shirts too early on the game. What most people don’t realise is that there are costs associated with every trade, that goes beyond having to pay to acquiring the data they need, and there are other hidden expenses such as commissions and third-party technology accesses. So, it is vitally important that every trader, whether at an institutional level or as a private individual has the complete picture of the expense breakdown, otherwise this potentially lucrative activity could very quickly turn sour and large losses be incurred.

The FX market was one of the first truly global markets to go electronic and lent itself perfectly to the “click and trade” mentality. The commoditised nature of the underline currency pairs, and the speed of price change required an execution dynamic that was a marriage made in heaven for trading screen-based technologies. Over the years these technologies have evolved and some of the independent venues offering an FX trading service have cornered a sizable piece of the action.

Of course, one of the interesting by-products of an electronic trading venues, be it FX or indeed now Crypto Currency’s is the relative ease in which you can capture the data from the “exhaust pipe of your trading system” and use it for other purposes including data sales. It is this data that is often reused for price discovery purposes that then goes into generating new trading ideas for the whole process to repeat again. With “professional quality” data now readily available at a more competitive price point, this allows the private investor to bypass the traditional data vendors channels, once the tool of choice for the great and the good, enabling them to compete on a price discovery level playing field.

While everyone still the freedom to choose what they need and where they go to access the data and supporting information they need, the impact of new technology on this industry is driving positive change that has been a long time coming.  This is helping to democratise the industry and spread new wealth making opportunities to a far wider audience in ways never previously thought possible. Bring it on.

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