Any international trade involving different currencies is likely to pass through the foreign exchange (forex) market, where the trading currencies will be levelled (and the broker will take their cut off the top). As an entirely liquid market, forex is one of the few truly global markets to attract daily turnover in the trillions, and 2016’s average daily value was $5.09 trillion.
Forex is the largest global market by far, and also one of the most stable. While credit, insurance and other large markets have a tendency to rise and dip with the day’s global events and happenings, the nature of global currency trading maintains a balance. The foreign exchange market is the closest thing we have to perfect competition in trading, making it a highly desirable financial field in which to operate.
Key players in the Australian forex brokerage market:
- IC Markets
Pepperstone is the standout name on the list, and probably the first place a new trader will turn thanks to its reputation and reliability. The longstanding and trusted company ranks highly for customer satisfaction and for transaction speed – both important metrics by which a good broker is usually measured. However, there are hundreds of different brokers out there, many of which are independent startups making a name for themselves in the industry.
Growth of independent brokers
Across all financial markets, one of the biggest disruptions of the previous twelve months has appeared in the insurance sector. A new wave of technology-oriented start-ups, colloquially known as ‘insurtech’ companies, are changing how people secure insurance, monitor their own data and drive down their premiums. Now, this concept is moving into other financial sectors – including the forex market. Companies which operate in retail and associated industries can create profit by bypassing the broker and offering the exchange service directly.
For example, Forexware is a piece of trading software which is designed to help trading start-ups to get established, using a ready-built platform that can be customised and branded. Programs such as this allow any company to open a foreign exchange market, to be used alongside retail and trade operations, or to offer a direct brokerage service.
Small to medium enterprises can therefore use forex programs to manage their own international currency exchanges, and to offer a brokerage sideline where appropriate. “We use forex software to facilitate multi-currency trades between our platforms, ensuring we are always getting the best value when we work with contractors and clients in other nations,” said by the marketing analyst from a leading Australian coupon brand OZCodes.com.au. “It has essentially closed one area of loss for us completely, and we can put the profit back into the company instead.”
Factors which can influence the forex market
We mentioned the stability of the foreign exchange market previously – but there are still a number of factors which can affect currency trading. Many of these relate to the nation as a whole, and affect the way the currency trades globally. These factors include:
- Political turmoil and major governmental change
- Diplomatic incidents
- Terrorist attacks
- War and civil unrest
- Earthquakes, floods and volcanic eruptions
When a major international event occurs, trade is often affected between the two nations – and sometimes between their allies and trading partners too. This can greatly upset the value of one currency against another: such as when the pound fell dramatically against the dollar and the Euro, in the wake of the referendum over European Union membership and following subsequent major decisions relating to the withdrawal.
This kind of event often sparks interest from global traders. While a disrupted market can be dangerous for those invested in one side of the imbalance, it can be greatly profitable for the other side. These rises and falls in the individual currencies which make up the foreign exchange market are the building blocks of any forex trading operation, and a wise trader will know how to ride these peaks and troughs effectively. Despite these occasional wobbles, the overall market is still the most solid and attracts the most global investment as a result.
Future expectations in forex trading
With the political climate seeming a little volatile as we move into 2017, there are uncertainties in the foreign exchange market and there are likely to be several major upsets as the months progress. Notable causes for concern are the ongoing threat of terror attacks, in particular cybercrime, and the United States’ difficult transition to a new presidential administration.
However, these events are foreseeable and therefore, the market can plan for them and make allowances. The bigger risk comes from the unexpected – the chance of a major global event that is not anticipated, causing one or more currencies to bottom out and leaving trade severely unbalanced. Although this is a testing time for investment, it is also an exciting time to be a new face in the industry – so there are likely to be many more forex start-ups trying to make a space for themselves in the burgeoning market.