We know forex as a booming industry that has experienced tremendous growth in recent years. This global marketplace where national currencies are exchanged against one another is the largest financial market in the world, surpassing the stock market, with a trading volume reaching trillions of dollars per day and over 400 thousand people working across its different sectors. These data paint the picture of a prosperous and thriving industry that is on a continuously rising trend.
But things weren’t always like this. Looking back in time we can see just how much the foreign exchange market has evolved since its humble beginnings. There are many factors that supported this growth, but technology is without a doubt the element that played the most important role in its progress. Few people remember how the forex industry looked before the advent of the internet and how transactions were being made at that time. Thanks to technological advancements, forex developed into the booming market we know today.
But how exactly did technology influence forex trading over the years and what benefits did it bring to the table? We’re going to discuss all that and more in the next sections of this article.
Trading – a story as old as time
Before we start analyzing the connection between technology and the development of the forex industry, it’s important to take a short trip back in time and learn a few basic aspects about trading, for context.
Trading is a practice that dates back to antiquity. People have been exchanging goods and assets since the dawn of civilization, long before the concept of money even existed. Trading was conducted through a bartering system – basically, people would exchange goods and services for other goods and services and this practice went on for centuries.
However, the bartering system wasn’t the most efficient one as it presented several challenges and limitations. First of all, exchanging one good for another was quite a cumbersome process due to difficulties in carrying items around and storing them. Secondly, there was the issue of establishing a common measure of value, since there was no measuring system in place. Also, a double coincidence of wants was needed for people to trade goods.
All these obstacles led to the emergence of commodity money that made trading infinitely easier. Instead of carrying heavy loads of goods to make a trade, people started using commodity money as a medium of exchange.
The transition to modern currencies
Although the trading system was greatly improved by the introduction of different types of currencies, they looked quite different from the currencies we know today. Before the creation of coins and later paper money, people would use all sorts of objects such as animal teeth and skins, weapons, stones, salt or exotic feathers to pay for the goods and services they wanted to purchase.
The lack of standardized currencies also posed issues on establishing value, so these items were far from being an ideal method of exchange. The big breakthrough came when the first gold and silver coins were created by the Greeks. This represented the beginning of modern trading where standardized currencies facilitated the process and eliminated previous limitations.
But gold coins were also heavy and bulky, so there was still room for improvement. The Chinses came up with the solution around 700 B.C. when they transitioned from coins to paper money. It took a while for the rest of the world to catch up, but finally, all countries started issuing paper money. Today we have 180 different kinds of official currencies in the world that can be traded in the forex market.
Forex before technology
After this brief history lesson, it’s time to take a look at the forex market before technology hit the scene. Back in the day, only large companies and financial institutions had access to the forex market and were able to exchange currencies against one another. There was no way for individuals to enter the competition and trade currencies in order to make a profit.
The process of trading currencies was also slow and cumbersome since companies didn’t have the possibility to obtain information in real-time. Lack of information, a limited understanding of foreign currencies, and poor communication were major obstacles in trading forex efficiently.
Since the forex market has always been influenced by a multitude of factors, such as Macroeconomic statistics, inflation, or debt, and organizations didn’t have the necessary tools to analyze them and assess their impact, managing risks was also a lot harder than it is today.
Forex after technology
Then technology came into play and changed the rules of the game. Technology has indeed revolutionized the forex market, making the process of trading currencies significantly easier and more efficient.
For starters, corporations and financial institutions no longer hold a monopoly over the forex market. Nowadays, with the right knowledge and tools, people from all walks of life can engage in forex trading. It’s as easy as learning the basics about forex trading, choosing an ECN forex broker, and staying up to date with relevant information to become a forex trader and generate an income from this activity.
Technology has facilitated people’s access to information so that anyone can stay up to date with the latest news and trends influencing the forex market and make wise trading decisions. Prompt access to information is key when trading forex, as it can help traders make more accurate predictions about the market and thus minimize risks.
Thanks to the numerous forex tools and platforms, transactions can be performed in real-time, eliminating latencies in foreign exchange buying and selling. What’s more, trading apps provide traders with the possibility of accessing their accounts wherever they are and trade foreign currencies on the go.
But brokers and trading platforms aren’t the only ones supporting the growth of the forex market. Automated programs are now employed to do much of the heavy lifting in forex trading. Trading bots are used to analyze data and manage trading activities, taking the burden of brokers’ shoulders.
As technology continues to advance, we’re bound to see further improvements in the foreign exchange market, so the future looks bright for the forex industry.
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