Technology has a huge and, some might argue, unfathomable effect on our world. Every day, businesses and global marketplaces continue to develop at a rapid rate outside of our personal lives.
Foreign exchange, often known as FX, is one of those financial institutions that is always developing. But, before we can properly grasp the current and potential future implications of disruptive technology on currency, we must first understand how it originated.
In the past, how was forex traded?
Forex trading dates back to the dawn of civilization. People used to trade goods and services for a price, even if that price was in the form of raw resources or food. The issue was determining fair value individuals couldn’t agree on whether the things being bartered were equal.
To address this, Thought Co. points out that early civilizations created commodity money, which evolved into metal coins and paper currencies later.
This cleared the door for simpler international trade. To accomplish an equitable transaction, traders no longer had to haul around heavy items like tobacco or livestock. Fast forward to the 17th century, when Amsterdam launched the first currency market, allowing for simpler worldwide market transactions.
The way forex trading was done back then was nothing like it is now. Trading was facilitated only by major enterprises and governments with global renown, as well as commercial banks and international corporations. Furthermore, due to a lack of technology, communication was sluggish. Because forex is largely reliant on real-time developments, traders found it challenging to keep informed and reduce their risk.
How is Forex traded nowadays?
Traders now have the benefit of receiving updates in seconds. The internet has made it simpler to find information and keep up with local and global news. Inflation, debt, and political stability are all variables that influence currency exchange rates.
These facts are crucial for assessing risk, making well-informed and timely decisions, and generating accurate forecasts about the future.
However, improved information transmission isn’t the sole advantage of technology in forex trading nowadays. To trade currencies, you no longer need to be a financial expert as long as you have access to numerous trading instruments and platforms. As a result, big businesses no longer have a stranglehold on the market, because anybody with an internet connection may trade from the comfort of their own home.
Scope Markets, which debuted in Kenya last year, demonstrates how trading platforms may benefit even young investors. Beginner investors may use the forex market to create money and protect their future with the right training and guidance. Trading robots are now being utilized as well.
FXCM’s section on forex robots explains how they work and how they select the optimum trading circumstances. Furthermore, forex robots are programmed to execute orders automatically and handle gains and losses.
This cutting-edge technology has the potential to improve precision, minimize errors, and moderate human emotion, which can lead to emotional trading. Overall, forex robots and other disruptive technology are helping traders earn in ways that were previously unthinkable.
Increasing value through automation
There has been concern that automation will render humans obsolete in the workplace; however, I do not believe that technology can replace a good trader’s instincts and experience, or the excellent service that many forward-looking liquidity providers (LPs) provide to their clients in the financial services markets.
Backend automation, on the other hand, I feel, gives traders more options by allowing them to focus on giving the best value whenever and wherever they are. There are many different options that the traders might choose, this is why it is important to know the main characteristics of each of them, such as MetaTrader vs cTrader in order to accomplish the goals.
Automation that is both flexible and controlled is the key: automating small, routine operations saves you time and energy while also providing supervision and control if something goes wrong.
A contemporary buy-side institution, for example, requires multiple systems to communicate with one another, which has historically been accomplished using integration and communication protocols such as FIX. You may now utilize an application programming interface (API) to automate order processes by allowing a program to communicate directly with your FX execution management system (EMS).
If the conditions are appropriate, the FX EMS can read orders as they come in and figure out what to do with them. It can also monitor market conditions and automatically manage and execute smaller orders at the best prevailing price.
Some orders may be submitted to more complex algorithms by a buy-side institution. With automation, the system may distribute algo orders equally throughout an LP panel – according to ratios within the institution’s control – and track fills from each bank’s algo, allowing the algo’s performance and subsequent value to be evaluated and presented to investors in an objective manner.
The prevention of information leakage is one area where automation makes a major difference. While the topic is sometimes phrased in terms of last look and stream vs Request for Quotes (RFQ), the core issue is actually about telegraphing your intentions to other entities before finishing execution.
The entity that is typically used to ‘leave instruction’ for a transaction is also the ‘counterparty’ to the deal in FX markets, which creates a unique paradox. It’s like putting a lion in charge of a butcher shop. Previously, there were limited options to manual execution, but now traders may utilize an automated system that operates 24 hours a day, across all accessible LPs.
Using online technology to streamline
Because they give a simpler user experience and universal access without the need to download and install sophisticated software, online technologies are a game-changer.
To get started, simply use a browser to log in. The advantages are more obvious on the back end: the overhead costs of running, supporting, and providing trade services from these platforms are considerably reduced. It also improves business continuity since employees may access the systems from any device with an Internet connection, even if they are not in the office.
What’s more, there are now technologies available that allow for commonality between various systems that utilize comparable web-based technologies; a secure “bus” that can be used for apps to interact with one another.
Such technologies offer the possibility of cross-application interaction and communication without the requirement for a typical large-scale backend project including bespoke connection, software integration, and complicated security issues.
Taking advantage of developments in mobile technologies
Devices and associated technologies are also important in this digital revolution of FX trading, and the smartphone is arguably the most powerful agent of change.
By offering continual, seamless access to markets while we are on the road, mobile technologies are fast changing the way we engage with each other and with markets.
They provide a safe, secure trade environment with unprecedented ease of access when combined with correct usage of biometrics such as facial recognition, which is already a widespread feature of mobile phones.
Trading is feasible even if you don’t have access to a computer or a laptop; simply open your phone, log in to the app or platform, choose your transaction, and execute it.
Checking the market status is much simpler and can be done in a matter of minutes from any location. Meanwhile, compliance controls and restrictions continue to safeguard the trader, investor, and company, resulting in a win-win situation.
When we consider it, it’s incredible that, despite financial centers being forced to close almost overnight due to the epidemic, we can continue to trade and execute complicated strategies without missing a beat thanks to all of this varied technology and solutions.
Zero downtime amid some of the most volatile market situations we’ve ever witnessed; this would have been unimaginable only ten years ago. When I say that I am proud to have played a tiny part in enabling that to happen, I believe I speak for all of my colleagues – in the broadest meaning of the word.
How Will Foreign Exchange Be Traded in the Future?
Thanks to technical developments, the foreign exchange industry has gone a long way. In terms of data analysis, robots and artificial intelligence will continue to develop, allowing traders to pay close attention to each transaction.
High-frequency forex traders will be able to make even quicker choices thanks to the 5G network, according to experts at CEO Today. Furthermore, technological advancements are expected to make forex trading easier to comprehend and more accessible to people from all walks of life throughout the world.