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How Fintech has helped Transform Forex Trading

The FOREX trading market is the most liquid in the world and handles a massive amount of trading activity. It’s a sector that’s expanded with technology and forex trading apps have put market accessibility into the pockets of anyone that wants to be a trader. The mass uptake of trading through apps and websites corresponds with a rise in dedicated accessibility tools and analysis that have simplified the trading process. For example, apps and trading algorithms can provide automated glimpses into the best strategies, while profit calculators provide near instantaneous insight into the profit and loss potential of any trade. This has seen trading being transformed from a specialist skill to an accessible investment method that, with the help of fintech innovations, has unequivocally, gone mainstream. In fact, it’s become so popular that the industry now nets a massive USD$5.3 trillion on average, every day.

How Fintech Can help Manage Risk

Increased mainstream accessibility means that conversations about risk management have become more important. While forex trading has essentially become democratised, there are core risks that every trader needs to be aware of and needs to know how to manage. Unfortunately, risk management isn’t traditionally a core part of the conversation and new traders are often left to educate themselves about the best way to understand, assess and manage the risks. One of the most important parts of the fintech led revolution is that it’s been able to help redirect the path of mismanaged or completely ignored risk management into a more positive trajectory as fintech’s commonly focus on risk management and are focused on making substantial changes to the technologies used in forex. Technology that enables improved analysis, risk prediction software and machine learning can significantly impact how a trade occurs and the size of the risk over time. The result, hopefully, is that if a program or AI is able to predict the chances of a market crash, it can inform a trader to make decisions inline with that level of risk.

Cryptocurrency’s Forex Revolution

Cryptocurrencies are shaping up to be the next huge innovation in Fintech and forex. As the bitcoin market continues to grow and stabilise, blockchain technology is underpinning that growth to help reduce the changes of fraud and hacking as well as facilitating faster transactions by eliminating intermediary steps. One example of a large player utilising the blockchain is HSBC, which has used blockchain to settle USD$250 billion in forex trades, taking the total number of payments settled to more than 150,000 and more than 3 million forex trades. These innovations aren’t only for the major players, with cryptocurrencies bringing a number of benefits to the FOREX space to help traders leverage new technologies to make trades and expand their operations. These benefits include: Decentralised valuations: Bitcoin and other cryptocurrencies aren’t tied to a central bank and are free from the geopolitical influence and macroeconomic issues that plague other currencies, including country specific inflation and interest rates. No Global Boundaries: Bitcoin and crypto currencies are known for being boundary-less and this means that traders from across the world can increase their trading pool. For example, a South African trader can trade through a UK-based broker. Security: Traders can enjoy the benefits of the encrypted and privacy focused cryptocurrency, including keeping their credit card details and bank accounts secure and when making trades and purchasing bitcoin.

New Opportunities through Fintech

There are some trends that have been developing throughout 2020 and look to continue into the future, as forex trading keeps up with the pace of technology. Some of these trends (like AI and machine learning) we’ve already started to see but will continue to develop throughout the rest of the year and into 2021. The most notable trends:

  • Up to 80% of traders expect for AI and machine learning to be fully integrated into forex trading within the next three to five years

  • Continued focus and importance on trade performance analysis, real-time risk management and cybersecurity to provide longer term defensive solutions for the broader forex marketplace

  • Continued growth in end-to-end trading solutions

  • Further, more integrated, trade cloud adoption and cloud delivered solutions to help lower the total cost of ownership and promote agile development methodologies.

Looking Forward There’s a lot to look forward to in the future with fintech and forex trading seemingly a perfect match for technological growth and increased accessibility. The benefit that forex has had from fintech’s support and development means that the number of UK traders is on the rise and there are also growing numbers of millennials and women moving into the traditionally older male dominated space. We’ve also seen the UK increase its lead as a global leader in the global currency trading market in the time since the Brexit referendum, with more than twice as many traders as any other European country (placing the actual number at more than 730,000 online traders). The popularity of forex will continue to boom and as it does, it will open new avenues for Fintech’s to think about how their adaptability and manoeuvrability can be beneficial for global currency exchange markets far into the future.