The Future of Forex Trading

Posted on December 30th, 2009 in Finance by

The Future of Forex Trading

The foreign exchange (currency or forex or FX) market exists wherever one currency is traded for another. It is by far the largest market in the world, in terms of cash value traded, and includes trading between large banks, central banks, currency speculators, multinational corporations, governments, and other financial markets and institutions. The trade happening in the forex markets across the globe currently exceeds $1.9 trillion/day (on average). After the advent of Internet into comman mans home had made it easier for retail traders to trade in the foreign exchange market.

The 2004 BIS survey shows a surge in traditional foreign exchange trading. This seems to have been driven by momentum trading and carry trades in a global search for yield on the part of institutional investors and leveraged players as well as by hedging activity.

A major catalyst to the acceleration of Forex trading was the rapid development of the Eurodollar market; where US dollars are deposited in banks outside the US. Similarly, Euromarkets are those where assets are deposited outside the currency of origin. The

Eurodollar market first came into being in the 1950s when Russia’s oil revenue– all in dollars — was deposited outside the US in fear of being frozen by US regulators. That gave rise to a vast offshore pool of dollars outside the control of US authorities. The US government imposed laws to restrict dollar lending to foreigners. Euromarkets were particularly attractive because they had far less regulations and offered higher yields. From the late 1980s onwards, US companies began to borrow offshore, finding Euromarkets a beneficial center for holding excess liquidity, providing short-term loans and financing imports and exports.

The recent technology advancement has broken down the barriers that used to stand between retail clients of FX market and the inter-bank market. The online forex trading revolution was originated in the late 90′s, which opened its doors to retail clients by connecting the market makers to the end users. With the high-speed Internet access and powerful central processing unit, the online trading platform at home user’s personal computer now serves as a gateway to the liquid FX market. Retail clients can now trade

together with the biggest banks in the world, with similar pricing and execution. What used to be a game dominated and controlled by major inter-banks is becoming a common field where individuals can take the same opportunities as big banks do.

Online forex trading market has changed in the last few years by allowing any type of investor to place money using brokerage firm’s margin accounts. It is currently the largest trading market in the world and can only do your money good. The trade happening in the ForEx markets across the globe currently exceeds $1.9 trillion/day (on average). Until recently, foreign exchange brokers did large amounts of business, facilitating interbank trading and matching anonymous counterparts for small fees. Today, however, much of this business has moved on to more efficient electronic systems, such as EBS, Reuters Dealing 3000 Matching (D2), the Chicago Mercantile Exchange, Bloomberg and TradeBook(R). The broker squawk box lets traders listen in on ongoing interbank trading and is heard in most trading rooms, but turnover is noticeably smaller than just a few years ago.

The inter-bank market caters for both the majority of commercial turnover and large amounts of speculative trading every day. A large bank may trade billions of dollars daily. Some of this trading is undertaken on behalf of customers, but much is conducted by proprietary desks, trading for the bank’s own account. But retail trader is also a major player in this market.

The Forex market differs from other financial markets in that it has no central location or exchange. It is instead a global electronic network of banks and traders that trade one currency for another in every major financial center in the world. The result is a 24/hour a

day market! The Forex market is the newest market in the world. The Forex market has an average daily volume of $1.9 trillion per day, making it 150 times larger than the New York Stock Exchange!

Internet, Wi-Fi is going to revolutionize the market. You can buy sell currencies on the go. Using all tiny carry along gadgets like mobile, PDA, eNotebooks etc. This has its own good and bad effects. The SPURT in you can empty your pockets in minutes. When

you are on a high after a bash and you hit the wrong button you lose your hard earned money.

Internet-based trading of currencies currently only accounts for about 5% of total. Forecasts say that there is a strong growth in this area. Major online foreign exchange markets and top electronic FX trading systems, including the following are poised to grow at a rapid pace.

Atriax

FX Alliance

FX Connect

Currenex

Matchbook FX

EBS

Reuters 2000

Major advances in technology, especially in online trading platforms, are not only helping to ease foreign exchange trading, but also allowing access to the market in ways never available before. Although online equity trading has grown significantly in the last three years, Internet-based foreign exchange trading has been far slow to develop. Major foreign exchange players are becoming aware that not only can they improve trading services for clients with Internet-based systems, they can also save significant time and money in transactional efficiency gains.

With steady growth of the FX markets and the increasing adoption of E-FX among the market participants, algorithmic trading is emerging as the next level of trading technology for market participants to contend with. Although there is much confusion about the technique, most market participants seem to agree that it

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will be used increasingly frequently. According to financial consultancy Celent estimates, by 2008 up to 25% of all trades by volume will be executed using algorithm, up from about 22% in 2006. It estimates that 60 percent of inter-dealer trading today is done on electronic platforms. The dealer-client market is less electronic, at 43 percent. They predict that electronic trading will grow to 90 percent in the inter-dealer market, and 70 percent in the dealer-to-client market, by 2007.

More Money, More Platforms this is what is going to happen. Yes its true. The electronic trading platforms in the inter-dealer cash forex market operate in an environment different from that of the dealer-to-client platforms. The inter-dealer market is well served by two strong platforms with complementary currency pair strengths, while the dealer-to-client market is more fractured, with five specialized platforms and one very recent entrant. In Future we can expect more of them as the global economic scenario is changing at rapid pace.

It is predicted that all these platforms will become more liquid in the future as adoption of electronic trading continues to increase. Each dealer-to-client platform (with the exception of FXAll) is targeting a specific type of customer within the buy-side, so there is not as much head-to-head competition as in other markets, such as equities. FXConnect is uniquely positioned to serve asset managers, Hotspot has specialized in serving hedge funds and CTAs, and 360T has dominated among Central European corporate treasurers.

For these reasons, it is believed that there is room for all the existing platforms and new platforms in this market. The changes taking place in the foreign exchange market and advances in Internet-based marketplace technologies have converged to create a new breed of foreign exchange trading. This new phase will forever change the foreign exchange market and will eventually lead to a truly transparent, liquid market. However, this transformation will not take place overnight. It is expected that it will be at least four years before even half of FX trading moves to the Internet.

The changes that are going to take place in this market are definitely going to show their impact on the society. This might not be true with developing societies but it could be true with the developed societies – cash rich and always looking at thrills. Your gains or loses change in seconds thus testing your nerves and discipline. A small blink or spurt can change your future from good to bad. This free for all access to the market can cause dangerous implications to the future society. What we need to do to avoid the downfall.

Discipline. That’s easy to say and much easier to practice in other markets. Forex makes it tougher because it’s always open, and big moves are always happening. It’s one of the reasons why an automated system is so valuable in ForEx. Even if you forego automation, you need to develop a script for trading that you can always follow. Consistency is the key, and your ability to stay consistent will surely be challenged.

Learn all you can, build a system, and practice trading before you risk a dollar. The early losses that come from a rush to trading can damage confidence, and that can be difficult to repair. The markets are going nowhere – if you take the time to learn and then consistently apply your knowledge to this huge market your rewards will surely follow.

Keep these facts in mind…

~95 % of all the traders in ForEx are loosing money.

~If you don’t have spare money which you can aford to loose – just stay out of it.

~If you think that this is the place which can make you rich and can solve all your problems – just forget it.

~But if you insist of learning this thing So go on and learn it.

~There are many schools for that Take your time and learn it as good as you can – and after that if you feel that you can trade do so

~Trade on a Demo platform like http://www.pip-forex.com/default.asp?trc=ema-00109-001 and keep thinking that it is real money after that if you think that you are good at that – so – go and open an account not more than 1000$ deposit.

~Another rule don’t ever never take leverage more than 50 times on your money.

~Don’t ever never trade on more than 10 % of your account.

As said the market is huge is there is place for everyone. A disciplined approach to trading will give you benefits. The Foreign Exchange Market is an over-the-counter (OTC) market, which means that there is no central exchange and clearing house where orders are matched.

Technology breakthrough not only changed the accessibility of the FX market, they also changed the way of how trading decisions were made. Research showed that, as opposed to unable to find profitable trading methodologies, the primary reason for failure as a speculator is a lack of discipline devoted to successful trading and risk management. The development of iron discipline is among the most challenging endeavors to which a reader can aspire. With the help of modern trading or charting software, traders can now develop trading systems that are comprehensive, with detailed trading plans including rules of entry, exit, and risk management model. Furthermore, traders can do back testing and forward testing of a particular strategy on a demo account before commitment of capital.

So retail trader has every change to gain from this market provided he follows the traits that are mentioned in this article.

The purpose of this article.

The main purpose of this article is to guide you through some important aspects of Forex trading. To guide you to the best methods and practices in the trade. It is a high risk trade and highest levels of discipline are a must in order to start trading. Hope this article will

help you in understanding the in and out of the trade.

Remember that only 5% will actually make it – but the reason for that isn’t ability, its staying power and the ability to change your perceptions and paradigms as new information comes available.

The losers are those who wanted to ‘get rich quick’ but approached the market and within 6 months put on a pair of blinkers so they couldn’t see the obvious – a kind of “this is the way i see it and that’s that” scenario – refusing to assimilate new information that changes that perception.

The Future of Forex Trading / Pat_Mar

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