What is FX Trading Going To Be Like in 20 Years Time?
Foreign exchange trading was born shortly after President Nixon pulled the United States from the Gold Standard to let the value of a U.S. Dollar float. This was in August of 1971- over 40 years ago. It is unlikely that anyone could have accurately predicted how the Nixon Shock would create a several trillion dollar, world spanning industry. Could such a surprise be waiting in our future? Where will the forex market be 25 years from now?
When considering what Forex trading is going to be like in 20 years it is going to be a difficult task, especially since it’s hard to predict what will happen in the future of Forex trading in the next 10 minutes – or less!
Forex Trading Has Exploded in Popularity in Recent Years
In the past few years, Forex has gone from being a relatively unknown and unavailable investment tool, to an almost worldwide phenomenon. The easy accessibility that computers give to Forex trading, and the sudden explosion of Forex software tools and websites, along with all kinds of training and advertising, have made many people want to try their hand at making a profit through it. According to a Dow Jones Newswires analysis, the "Daily average foreign market turnover reached $4.71 trillion in June 2011," which is significantly more than the previous year’s volume published in the Bank for International Settlements' 2010 report with a figure of $3.98 trillion a day.
Apart from marketing and accessibility, though, the idea of possibly getting rich while still at home has obviously fascinated many – and will certainly continue to do so. When money was more accessible and more readily flowing – before 2008 – people could put their money into Forex, lose some, and not miss it. After 2008, money was harder to come by, but people needed to find ways to supplement their income, and Forex appeared to be the ideal and easy way to do it. Even though there was an increase in the overall volume of trading during those years, the Triennial Central Bank Survey of Foreign Exchange and Derivatives Market Activity (“the Triennial”), reported in the document already mentioned by the Bank of International Settlements, that the rate of rise had actually slowed down, going from a huge increase of 72 percent between 2004 and 2007, but only rising 20 percent from 2007 to 2010. If the economy does not change much, this may be a foreboding shadow being cast over the future of Forex.
A Recent Slowing Trend of Forex Trading
That same report by the Triennial does mention that there are some unexpected groups that had slowed down in their overall Forex trading during that time. This included governments and central banks. During that same time, however, there was a considerable growth in trading volume by individuals and smaller trading institutions. While the market was largely available to only the larger institutions years ago, the explosion of the Internet being made available in many new places, along with portable computers and mobile devices, has made it accessible to many people everywhere.
This slowdown in Forex trading may indicate what is going to be happening in the future. While no one is able to say for sure what is going to occur in the future 20 years from now, the present state of the economy and a noticeable trend already in place, may be telling us very clearly about the future of Forex trading.
According to CommSec’s Richard Burns, 20 to 30% of share trading will be done on a mobile device by the end of 2013. If we take into consideration the sheer size of the forex market compared to trading shares, forex trading in 20 years will be solely be done on mobile devices.
Many foreign exchange brokers are seeing huge increases in mobile app usage, with some saying that it accounted for as much as 15% of total online retail trades.
The expansion of mobile devices globally now enables Forex traders to watch streaming headlines, or read economic data and see analysis statistics instantly. They can also receive price alerts and a lot more. This makes it not only electronic, but it also enables traders to trade from almost anywhere and at any time of day. There is no doubt that Forex trading will be much more simplified 20 years from now.
Economic Problems Are Continuing Worldwide
Present economic conditions are affecting a lot of currencies right now, and many of them are performing rather poorly – including the second largest economy in the world – China. The Euro is another economy in trouble. Recent criticism has some believing that the Euro continues to be in trouble – and will be for another 20 long years, says Wolfgang Münchau, a columnist at Financial Times (FT.com). His reason for saying this is that he believes that part of the problem is that there is not the necessary banking union yet, and this will never happen until there is a single political union in place.
At present, the three most traded currencies are the U.S. Dollar, Euro, and Japanese Yen. It is hard to imagine that the U.S. Dollar will be replaced as the most traded currency any time in the near future. There are just so many different entities around the world that have dollar backed investments or that conduct their normal business in dollars. The Euro, while not as widely used as the dollar, is still utilized and traded by a significant number of people.
The U.S. Dollar and the Euro both have similar hurdles they are working through. Euro nations and the United States both have economies that are not generating the type of benefit they should be. A significant portion of America seems to be trapped in a 1950's type of mentality. There seems to be the idea that significant change can roll things back to a more stable time in U.S. history. Meanwhile, everyone seems to be broke.
There have been no real, significant strides in meeting these challenges. If the United States government gets its act together soon; it is quite likely that the U.S. Dollar will still hold the lion's share of transactions. Even if it fails to make real gains, it will still likely be commonly traded. The Euro is in a similar situation with EU nations going bankrupt.
Should the U.S. Dollar fall; it seems like the Japanese Yen would be the most likely currency to step into the Dollar's place. The Japanese economy is strong and would only benefit from a slow down of the dollar. The dollar is too deeply entrenched to be knocked out of its place easily.
It's very unlikely that China would ever have a significant following due to their penchant for manipulating their currency value.
Forex Software Is Becoming More Abundant and Accurate
There will be continue to be an increase in the availability and types of software that automates the Forex trading process in the next 20 years, which is already growing faster now than ever. The software will become even more sophisticated and highly customizable, so that anyone will be able to easily set it up and use it, most likely requiring a much lesser need to understand Forex trading at all. There is little doubt that it will probably install itself and just need a little tweaking once installed. The report mentioned previously from the Bank of International Settlements, shows that manual trading made up 98 percent of trades in 2004. In 2010, however, trading by voice had dropped to only 55 percent of all trades – and 20 years from now – all of them will be electronic.
Last year brought a number of complaints against BNY Mellon because of a problem with pricing differences between using standing instruction trades and the newer electronic Forex trading platforms that automate the process. In the past, Mellon had generated 20 times the revenue from this older way of doing business than the new, which would easily explain their reluctance to fully adopt the newer technology. Apparently, the old way is better at generating revenue for Mellon Bank because it also gives their Forex traders less transparency than electronic platforms do, and this has resulted in a number of lawsuits going on now. Of course, other banks and lending institutions will take warning, and seek to hasten the change to the more modern electronic trading platforms, which also seem to be the preferred choice. The future of Forex may not be too far away.
WorldFinance.com reports that the April 2012 edition of their magazine, Euromoney, stated that only 18 percent of Forex trades were made by voice now. This is expected to drop down to 13 percent in the near future.
Automated trading will likely reach a high degree of popularity and greater probability. However, we must not forget that price action is driven by human emotion. It is humans that set the parameters for automated systems to take actions. Technology completely replacing the human element does not seem very likely. It would be an entirely different market if it were solely driven by bots.
Inability to Predict Forex Market Will Always Mean Risks
Trying to predict what will happen in the Forex market in the next few minutes is something that many have tried to do since it existed. That is the name of the game. Although software may mean a greater ability to see trends, there will always be risks – or the market will have to shut down. Trying to predict what will happen is part of the game. This is why as many as 95 percent of the people who enter the game – lose. TradeCopier mentions that "For generations, people have tried various methods of minimizing the risks but each of these techniques has their own disadvantages. Although the functions like stop loss has helped people to limit their losses, they cannot guarantee you a profit."
The development of better software in the next few years means that it will become easier to make a profit. Many Forex software companies currently advertise their particular product as being the "future of Forex." Some products, such as the MT4 Trade copier, aim to reduce the risk of loss, and, as a result, seem to be becoming more popular. A clear advantage of software, if people will learn to trust it, is that it can help eliminate emotion-based trading, which is always a problem. Certainly not all software is equal, and any choice will need to be personally tested before being trusted – even 20 years from now.
Managed Forex Accounts Are Increasing
Investing in a managed Forex account, which are growing in number, can provide a safer way to deal in Forex trading. A potential problem is that the safety of the investment depends on the individual who is actually doing the trading, and this person probably is not a part of the investment company at all, says ManagedForexAccounts.net. Levels of risk can be chosen, just as in stocks. This form of investing typically offers a 10 to 15 percent yearly profit, some much higher, but they may require an initial deposit of $10,000 or more. Some companies claim to offer profits of more than 100 percent! A Forex account may be manual or automated, says SecureInvestment.com. Many investment companies are offering Forex investments as part of a balanced portfolio, and this type of portfolio seems to be currently outperforming other types. With this much of an advantage, you can expect that it will definitely lead to more people heading in this direction in the near and long term future.
What Does the Future Hold for Forex?
A brief glance at a number of Forex forums indicates that there is some talk about there one day being a single worldwide currency. Of course, if this should ever happen, there would be no future Forex. Although not impossible, it is not seen as being likely. There are just too many people in high places – and rich – that enjoy being able to continue to make profits easily from the comfort of their homes – or office.
In spite of that, an interesting chart was made by Paul Kedrosky at SeekingAlpha.com. He had placed the number of worldwide currencies on a chart (starting with 1950) and the number of currencies per country on it as well. This resulted in two lines showing that over the past dozen years that even though the number of countries had grown, the number of currencies per country had declined.
From that basic information, Paul predicted that at the present rate of decreasing currencies, which was 17 in the last twelve years, that there would be a single currency by January of 2015.