Forex – also known as FX or foreign exchange trading – is the largest financial market in the world, with a staggering trading volume of $5 trillion every single day. That means its average activity is more than double that of the stock market, which trades ‘just’ $212 billion a day.
Today, millions of people all over the world choose to trade in forex thanks to its high volatility and liquidity. The history of the market actually stretches back to the 1800s, when a ‘gold standard’ for currency was officially adopted in 1819.
Forex may have a long history, but how has it changed most recently? This post will explore how foreign exchange trading has changed in the past decade.
Mobile trading
The rise of mobile activity has been one of the largest technological changes the world has seen in the past decade. Almost every industry has been affected by this consumer shift – and forex is no different.
Whether you’re a professional forex trader or an amateur investor, apps such as MetaTrader mean you can now trade on the go. Its mobile platform is integrated with official trading analysis, news, and research, offering its users up-to-the-minute information and accurate trading projections.
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Mobile platforms are well-suited to the volatility of foreign exchange. As many people trade on a day-to-day basis, taking advantage of the market’s enormous trading volume, it’s beneficial for them to be able to access their forex account at any moment. Mobile trading enables them to do this, maintaining the fast pace of exchange.
Increased automation and HFT
A more controversial change has also shaped the forex market in the past decade: electronic dealing. This refers to the fact that computer platforms are increasingly replacing human traders, in a bid to reduce industry costs and increase automation. The move even prompted Bloomberg to claim that ‘FX traders [are] facing extinction’ in an article in 2014.
The supercomputers which are now responsible for automating the forex market are capable of high-frequency trading (HFT), carrying out a large number of trades every second. This has proved controversial, with some traders suggesting that it’s destabilising the marketplace. However, others support its impartiality, claiming that HFT removes the potential for human error and emotionally charged trading.
Whether the positive aspects of automation outweigh the negative remains to be seen. But one thing is for certain: supercomputers will continue to replace human traders in the forex market as we enter a new decade.
Heightened regulations
Historically, the forex marketplace has been incredibly difficult to regulate. This is because forex is necessarily global in nature, making it hard for a centralised body to govern its practises. As a result, unregulated forex brokers and scammers have been able to operate on the FX market for centuries.
The good news is that forex is becoming increasingly tightly regulated, and many countries now regulate forex brokers through governmental bodies. Here in Australia, for example, FX falls under the supervision of the Australian Securities and Investments Commission.
Regulated brokers must meet certain criteria to be approved by their governing body. These generally include:
- Promising to provide regular audits and reports
- Maintaining an acceptable risk level and fully disclosing what this level is
- Never using their clients’ funds to cover their own expenses.
These regulatory requirements aim to protect investors, maintain stability, and limit fraud.
