The forex market is one of the most liquid and influencing sectors in the global economy. It is also a highly sought-after investment tool for professionals and retail investors alike. The global forex markets are characterized by two primary trends. The first is a steady increase in the level of sophistication among market participants. The second is an unprecedented degree of volatility. Both trends are real, and they are here to stay. The key question is how long they will remain a feature of forex trading — or whether we’ll experience a period of transformation along with the rise of the Internet economy more than a decade ago during the dot-com bubble. Read on to learn more about these trends and their potential implications for forex traders in particular.
Forex Trading Becomes More Sophisticated
According to a reputable forex broker in Spain, one of the world’s largest investment and reference houses, came to the conclusion that the forex industry is becoming more sophisticated with the increasing adoption of trading algorithms and the use of advanced computer tools. The report found that in the late 90s, less than 10% of all trades were recorded using computers and robots. By 2004, the figure had grown to 70% and by 2008, it had risen to 91%.
Forex Markets Collapse
The start of the 2008 economic crisis quickly dislocated investors around the globe. Many saw the markets as being relatively safe, and as a result, they incurred large financial losses. The same could not be said for those who had been living in countries such as India and Brazil, which were still experiencing rapid economic growth. The situation then turned very negative for investors in Italy, Spain, and other core European countries, which all experienced deep and widespread losses on the way to being declared sovereign debt defaults.
Forex Markets Rise Again
As the economic situation began to turn around, investors started to look for safe assets to invest in again. Forex assets became a popular choice, with many speculating that forex prices would experience large increases in the near future. This optimism was not misplaced, as the vast majority of Forex trading occurs in the foreign currency trading sector. This sector is highly volatile, meaning that it is also very susceptible to changes in the economic or financial environment. As claimed by forex broker in Spain, the resilience of the forex market has made it an attractive investment option for many, including non-professionals. In fact, investors who use Forex as a trading instrument can make profits even when the economy is performing well.
Forex Trading Becomes More Volatile
When the economic situation improves and investors are looking for safe assets to return to their portfolios, Forex assets will once again become attractive. However, this time around, it is the Forex assets of the world’s major countries that will be competing for investors’ attention. The advanced financial systems that have become increasingly prevalent around the globe will have made Forex trading more volatile, with more risk-on trade and risk-off trade that includes more volatile assets such as stocks. When investors become more risk-averse, Forex assets that offer higher potential returns may appeal more to investors, which will only increase the overall volume of Forex trading.
The Internet Shakes the World Economy
In a recent report, Swat Nan, an investment consultant based in Hong Kong, predicted that the advent of the internet and digital media will have a very significant impact on the way people invest. In particular, Nan predicted that the rise of the internet economy will result in a decline in the importance of physical proximity to investment assets.