The Evolution of Forex Education and its Effect on Traders and Brokers Alike
By Olga Rybalkina, CEO, Forex Time
There have been a number of factors that have contributed to the exponential expansion of retail forex across the globe over the past two decades, but access to education has been at the centre of them all. Rapid innovation in mobile technology and the development of the internet has led to the creation of the online trading platform, which gives individuals access to the forex market whether they are seated in an office building in London or in a coffee shop in Jakarta. Economic growth in emerging markets, like Asia and Africa, has led to the acquisition of wealth, a growing middle class and a whole new population of investors. New financial centres, like Singapore and Shanghai, are also emerging as the increase in wealth is driving the establishment of new bases for financial operations and making access to the forex markets faster and easier across Asia.
Nonetheless, all of these elements revolve around access to information on a level that has never been seen before. Without the dissemination of knowledge over the internet, these potential investors would likely be looking elsewhere for ways to diversify their portfolio, feeling uncertain of how to approach FX.
This is why it is essential for brokers, online or otherwise, to have a solid understanding of this transformation. The global spread of information has not only spurred the rise of the retail forex investor, but also sparked an evolution in the role of the broker. Traditional service models are obsolete in the new era of the retail investor. Staying ahead of the industry means not only being plugged into the markets at all times, but also remaining in tune with the changing needs of this new type of client.
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That was Then, This is Now: The Evolution Of Forex Trading
While it may be equally easy for an executive in Manhattan or a shop owner in Bangkok to attend a webinar on price action methodology or trading psychology, this was not always the case.
Recent trends in educational tools and resources, as in all sectors of industry, only came about as the supply answer to a new demand. Up until the 1990s, the goblet of knowledge was held only by the elites of the financial sector, as was control of the forex markets. Between the creation of the ‘free-floating’ foreign exchange market in 1973 and the launch of the first online trading platforms in the 1990s, knowledge of trading was tightly guarded by hedge funds, investment banks and multinational corporations seated in the world’s financial centres.
At that time, particularly for Asian traders, educational seminars or workshops were almost non-existent. If they were being hosted, they were restricted to other financial managers, held in only a few select locations (typically New York, London or Tokyo) and maintained a steep price for admittance. For the investor, the forex market was extremely restricted both geographically and economically. Minimum trades were often as much as USD 1 million and required extensive legal paperwork and credit checks on the part of the investment house or bank. This alienated anyone without the liquid capital to invest or anyone without the resources to operate out of one of the major financial centres. Education of clients in forex trading generally happened over time as experience grew from interactions with their private banker and/or broker.
It’s not difficult to understand the resistance of the financial sector to relinquish control of FX market trading, given its lucrative nature. According to research conducted by Deutsche Bank, returns on forex investments between 1980 and 2006 were 11% per year on an annualised basis with 21 positive and 5 negative return years. However, once the first online platforms were introduced, the democratisation of the forex markets was inevitable.
Once the forex market opened to retail traders, more and more individuals became exposed to the world of online trading. This trend accelerated with the growth in mistrust of major financial institutions during the economic crisis as well as the rapid accumulation of personal wealth in emerging markets. Demand for online FX trading accounts increased and the industry responded with dedicated online retail FX platforms that allowed for initial investments as low as USD 500. Mobile technology took root and opened up the doors to a full range of investors in the emerging middle to high income classes in locations across the world.
Online trading companies quickly realised that with the use of mobile technology and the internet, they could reach a wider audience of current clients, traders and potential investors through sites, social media and web portals dedicated to education. Seminars, webinars, workshops, conferences and forums could be hosted either online or live. The same webinar could host a speaker from London and an audience from Thailand, Indonesia, China and Malaysia.
The Rise of Social Media: A Glimpse into the Future
Looking into the future of the forex industry, massive growth is in the forecast. More and more investors will be taking interest in retail forex in the wake of the financial crisis and as wealth continues to grow in emerging markets. Innovation in mobile technology and trading algorithms will push the capacity for faster, more accurate online trading, allowing individual investors anywhere in the world to compete with the ‘big boys’.
Popularity of social media and networks will continue the rise of social and copy trading as traders of all experience levels mirror the expertise of the ‘best-in-the-business’ from around the globe. New online trading companies will continue to open their virtual doors while existing financial firms incorporate social and online platforms as a larger percentage of their forex service model. Regulators have also set their sights on social trading platforms and accounts, encouraging policy that would designate lead traders as money managers. This requires them to evaluate account holders for their risk appetite and experience level, and restrict access to services accordingly.
Positioned right at the centre of this expansion are the emerging frontiers of the Middle East, Asia and Africa. Developed markets in the US and Europe are considered saturated and hold steep regulatory requirements. Focusing just on Asia, they hold over half of the world’s foreign exchange reserves and have come through the economic crisis relatively unscathed. While some countries are still inaccessible, this is quickly changing as many economies stand poised to deregulate and open their doors to the foreign exchange market. Social media platforms have taken root, spreading like wildfire and consequently driving interest in social trading. As of 2012, there were over 750 million social network users in the region, not only as a fad, but as a value-added method of communication. Meanwhile, the forex market across Asia is speedily approaching saturation. This is leading large and small brokers towards social or copy trading as a way to tap into a new client pool.
Simultaneously, the existing online retail forex industry is going to begin maturing over the course of the next decade. Investors are quickly becoming more sophisticated, thanks in part to the educational resources that have become widely available – locally and through the web. These traders are going to be growing hungry for more comprehensive trading knowledge and insight. They will also be looking at ways to improve their skillset and differentiate themselves from the other classes of traders on online platforms.
Retail forex service providers on all levels are going to have to continue evolving their service model in order to be at the forefront of this growth. This means entry into new markets and innovation in the technology and analysis provided to online traders, but also a proliferation, differentiation and integration of educational tools and resources.
The Ever-Evolving Nature of the Retail FX Trader: What to Expect
The growth of existing traders is creating more demand for advanced and customised educational tools to suit their individual needs in risk and investment management strategy. And as more brokers move into emerging markets where financial education has historically been non-existent, it will continue to be more and more essential to provide the fundamental principles and training necessary to help them responsibly manage their trading account.
Simple seminars on the basics of forex trading or an introduction to market terminology are going to continue to be important, but will not suffice. As investors – from city centres to rural outposts – become more sophisticated, brokerage firms will have to be able to provide more advanced education. Many have already begun supplying a more differentiated palette of training options to supply the widening demand from basic to more specialised trading knowledge.
The trend of social and copy trading, and the implications of its possible regulation, is also going to change the educational playing field. Forcing social trading platforms, and their lead traders, to evaluate their clients and restrict access to services based upon their experience level is going create further differentiation and integration of the educational platform. Dedicated training and certification platforms will become the gateway for investors of varying experience levels to gain access to new services. Meanwhile, new topics will be opened up, to aid investors in selecting the right traders to follow based upon their investment goals, risk aversion and trading personality.
Onwards and Upwards
It has been said that taking a look at your past can give you a glimpse into your future. In the case of the future development of the forex industry, one could definitely say that this is the case. Since its inception, the forex industry has done nothing but evolve, pushing boundaries and exploring new horizons. Current and upcoming developments indicate that this will only continue to happen, in a more rapid pace than ever before.
The role of the internet and technology has played a crucial part in the advancement of the industry, but it is education that lies at the heart of its democratisation and access to knowledge that has led its unprecedented growth into every corner of the world. Service providers understand very well that the market requires the parallel development of online trading platforms, analysis tools and educational resources. And as we move into the future, it is the further integration of this trifecta that will define the industry leaders of tomorrow.
Note: The content in this article comprises personal opinions and ideas and should not be taken or misunderstood as investment advice.