In stark contrast to the slick and streamlined traditional foreign exchange trading room, traders operating at their homes, offices and spare rooms have proven the durability of the world’s largest financial marketplace.
In a sign of how liquid FX has grown the most recent Triennial Central Bank Survey of the world’s foreign exchange market by the Bank for International Settlements (BIS) discovered that in April 2019 the daily trade in over-the-counter FX along with FX derivatives was $6.6trn.
To comprehend the crucial role that FX within the international economy thinks about, any sale or purchase of any kind of asset or product that is based on a currency that is not the base currency for one of their counterparties is likely to result in an FX trade of some kind. Imagine the consequences when the market is hit with some kind of blow to its operation or, more seriously even a complete failure.
The emergence of the COVID-19 pandemic between February and March of the year 2020 posed the same kind of impact. The floors of banks that trade closed or, at best, kept some staff.
What would happen?
Can the market continue to work?
Over the course of a few years, and particularly following the 2008 financial crisis it has seen an ever-growing shift away to traditional voice-based trading, imagine a raucous dealer shouting prices in the room in a noisy trading environment to digital platforms. The advantages of online trading are numerous.
For instance, each trade has an audit trail, and prices and trades are executed extremely quickly, and trades are able to be monitored to ensure that they are executed at the highest quality. They are fed into the participants’ straight-through accounting and processing systems and require minimal if any, human interaction, and thus there is no room for human errors. The expansion and advancement of online trading in terms of cost and speed have decreased the entry barrier, and more people are able to connect to these online services and begin trading in just a few minutes.
For this reason, there are many newcomers who are trying to find the best Forex brokers, which will furnish them with several useful tools to trade FX. There are trading platforms that specialize in allowing traders to trade via your Smartphone. Because mobile phones and applications are now the preferred devices to connect to the internet for lots of people living in the present.
With regard to the lockdown, it was possible for market participants to have the ability to access their platforms for trading and the appropriate security and speed and could work remotely. E-trading platforms and tools online are things that allowed the world FX marketplace to continue to function.
Effect on Volatility
It’s not to say that it was smooth sailing. In the final days of February and early March, the volume of trades increased dramatically. In addition to the impact of pandemics, however, governments across the world implemented a wide range of fiscal and monetary stimuli as well as in Russia as well as Saudi Arabia oil spat causing prices to plummet; a variety of different asset classes saw a decline and a rush for cash. There was also an explosion of speculation to profit from the volatility triggered by a divergence in markets and news.
“Volume all over the board was on the rise in Q1 2020, which included derivatives, with the most notable increase in outright forward contracts that were up by 40% during March,” said Tod Van Name, Bloomberg’s Global Head of Foreign Exchange Electronic Trading.
Trade isn’t the sole domain of financial professionals, however, it is now accessible to anyone interested in the Forex market. The Internet has revolutionized trading, making it more convenient, but also allowing for real-time.
Because the internet provides instant access on any device and makes trading online more flexible and you are able to swiftly respond to news stories in the news, which can impact the market price. Instead of going through a third party and being slowed by time delays you can purchase or sell at the touch of a button or even set purchase and sale orders that will automatically be fulfilled if something is found to match the different order books.
With regard to the market abuse scandals that erupted in the FX market in the period after the financial crisis, there was a major issue which the market was required to address with the potential for errors and willful misdeeds.
Can the market keep its integrity and honesty with its participants free from the scrutiny of their trading rooms?
The discipline and control that digital platforms provide have made a significant contribution in ensuring that the market behaves properly.
As we can observe, its guidelines have been adopted by a large majority of people and have helped guide markets through the volatile periods of the first quarter of the year.
In sum, well-crafted technology tools paired with solid accepted principles appear to have pushed the market apart.