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.
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.
Gold-i Integrates with CryptoCortex
Gold-i has integrated with CryptoCortex – an advanced digital asset trading platform from EPAM Systems, a leading global provider of digital platform engineering and development services. This provides financial institutions with increased access to multiple market makers and fully cleared cryptocurrency products available via Gold-i’s CryptoSwitch 2.0™, part of its Matrix multi-asset liquidity management platform.
The integration was completed following a request from a Gold-i client wanting to use the CryptoCortex platform to access liquidity from Hehmeyer and Shift Markets via Gold-i’s CryptoSwitch 2.0™.
Tom Higgins, CEO, Gold-i comments, “As digital asset trading continues to gain momentum amongst brokers, Prime of Primes and hedge funds, a key part of our strategy is to ensure that the cryptocurrency liquidity available through Gold-i’s liquidity management platform is easily accessible, regardless of which trading platform clients are using. CryptoCortex is one of the most advanced platforms for digital asset trading, therefore integrating with them was a logical step for Gold-i.”
“We are delighted to partner with Gold-i to provide our customers with real-time, event-driven processing and analytics that not only meets their essential needs but also delivers actionable intelligence,” said Ilya Gorelik, VP, Real-Time Computing Lab at EPAM. “Financial markets are among the fastest moving markets around, and with cutting edge tools – like CryptoCortex – that make data readily available, customers can quickly implement the best decisions possible.”
CryptoCortex is the most advanced institutional cryptocurrency trading platform on the market, providing a complete 360-degree solution for brokers/dealers, exchanges and buy-side trading firms. It has been developed by Deltix (now EPAM Systems), based on over 10 years’ experience in building, deploying and supporting institutional-grade intelligent trading across equities, futures, options, forex and fixed income.
Gold-i Matrix offers multiple routing and aggregation methods, leveraging connections with over 70 Liquidity Providers. It is super-fast and highly flexible, helping financial institutions worldwide to make more money and reduce risk. It supports FX, CFDs and cryptocurrencies in a single solution which is fully compatible with the Gold-i Crypto Switch. Crypto Switch™ 2.0, provides brokers worldwide with a fully cleared cryptocurrency product and a cost-effective, efficient means of accessing multiple cryptocurrency market makers who can provide deep pools of liquidity as a CFD or physical asset. For further information, visit www.gold-i.com.
5 Questions to Ask Yourself Before Trading Penny Stocks
Anyone and everyone from all corners of the world can trade from their comfort of their own as all that is needed is a computer and an internet connection.
Many people chose to trade complex asset classes like crude oil futures. But penny stock trading is preferred to many new traders because it is a lot easier to understand the stock market than the global oil market. Trading penny stocks is also cheaper to get started as some brokers have no minimum deposit requirement.
So how do you know if trading penny stocks is right for you? Here are five questions you need to ask yourself first.
1. Do You Have the Right Financial Motives?
Why exactly do you want to trade? If you want to trade to become a millionaire within a year or two despite little or no experience, trading most certainly is not right for you. Trading stocks involves risk but penny stocks could be even riskier.
Ask yourself if the money you want to risk trading penny stocks is needed for important expenses. Trading with rent money or your children’s education fund with the hopes of doubling is not the right mindset to have.
And forget about sustaining yourself with a guaranteed income at any point in your trading career. There is no magical number but you need enough money to cover at least six months’ worth of expenses while learning how to day trade.
But do you have a backup plan if your money runs out faster than expected? Can you call it quits earlier than expected and return to a regular job?
The appropriate and responsible path is to take a few months to learn how to properly and responsibly trade penny stocks. Learning the true ins and outs of penny stock trading strategies can unlock the potential for explosive returns.
2. Do You Have the Right Schedule?
Trading penny stocks for many people is a full-time job. But some people can get away with trading penny stocks as a hobby if they are available at only certain times of the day.
It is absolutely vital for penny stock traders to be alert and at their trading station at least an hour before the stock market opens. During the pre-market session, a trader is scanning the large universe of penny stocks to evaluate what stocks they will be buying and selling.
They might be looking at the news for a biotechnology company that released results from an encouraging clinical study trial. Or, they are looking for a company that announced a major contract win that would double or triple their sales.
So once 9:30 AM ET hits and the trading session official starts, a trader is well prepared.
But someone who is only available to trade penny stocks as of say 9:15 AM may not have enough time to prepare themselves for the fast action.
Similarly, traders that start their day in the afternoon session will miss out on many of the early movers and there is simply less opportunity from 12:00 PM to around 3:30 PM.
Part-time traders that start early enough can get away with ending their trading session before noon.
If you don’t have the right schedule due to work schedule, family obligations or you are in a different time zone, then penny stock trading during the off-hours might be a tedious task that offers little reward.
Source: Google Finance. (Ticker $MREO, daily chart from Dec. 18): This shows how early traders were able to capitalize on the strong gains and late traders missed out on a major surge.
3. Are You Motivated to Learn?
The day trading universe is open to anyone that wants to open an account and deposit money and no prior experience or knowledge is required.
But ask yourself first what do you really know about the stock market universe and how much are you willing to learn. Do you know how to read and understand Level 2 charts? Do you know the importance of SEC disclosures? What about evaluating what impact a poor earnings release will have on a stock’s movement.
It is OK not to know the answer to these dozens of other similar questions. But do you have the drive and dedication to learn from scratch? Do you have what it takes to read books and watch educational videos for weeks at a time? While this could be seen as an exciting process and an opportunity to learn a new skill, a lot of hard work and dedication is required to succeed.
4. Do You Know the Difference Between Trading And Gambling?
The general public shouldn’t be faulted for correlating trading penny stocks with gambling. They may have seen headlines about how the global COVID-19 pandemic prompted many bored sports bettors to find excitement and action in stocks.
But there is a fine line between trading penny stocks and gambling. Do you know the difference between the two? Gamblers will pick a penny stock — any penny stock and buy shares and simply hope for the best. They have no knowledge of what the company does, nor do they really care. They either make money on a trade or don’t.
Penny stock traders on the other hand have a strategy that has been developed, revised, and improved on over months if not years. They know how technical analysis can be used to determine an entry point, how to analyze volume trends, and where to get their news and information.
Perhaps more important, they know how vital it is to have an exit strategy as part of every trade and then to just move on.
Gamblers on the other hand love to double down when they are losing. If you are a gambler that is fine. Just be aware that the individual on the other side of your trade knows way more than you do about stocks and will be happy to take your money.
Which one are you? If you are a trader and know how to be disciplined and cautious then trading might be right for you.
Conclusion: Be Honest with Yourself
Trading penny stocks involves risk and many new traders fail. Checking off a bunch of answers from a checklist is useless and meaningless unless you are honest.
At the end of the day, only you can determine if trading penny stocks is truly the best move for you professionally. A broker certainly won’t be asking you these questions. It is not their responsibility to do so.
So be honest with yourself. If you really want to trade penny stocks but recognize now isn’t the ideal time for financial reasons or you have the wrong mindset there is nothing preventing you from giving it a shot in six months or a year.
This is a contributed article
Why the rise of retail FX is here to stay
By Michael Kamerman, CEO Skilling
2020 has been a tumultuous year for both the world and for financial markets. The events of this year have changed the very course of how we’ll live our future lives. Alongside the disruption of daily routines, the coronavirus disease has disrupted the global financial markets at systemic levels kicking in a global stock market crash in February this year. Sure, things look good now, but remember how you felt in early March?
The Coronavirus Crash had sent financial markets plunging into the fastest, most precipitous fall ever recorded in history and the most devastating since the Great Crash of 1929 – signalling in turn the beginning of a worldwide Covid-induced recession.
Certain industries have been hard-hit with many businesses unfortunately falling into insolvency. Many others are still fighting to survive the global lockdowns that threaten their existence. The new realities inflicted by the pandemic have also given rise to a new set of consumer needs and have as a result driven surges of interest in some sectors.
While the headwinds of Covid-19 have made this a chaotic year, the changing lifestyles of consumers have fueled the growth of other more fortunate industries. These include, for example, online retailers, home-delivery services, pharmaceuticals and biotech, video streaming services as well as… online trading. And a sector experiencing outsized growth in online trading is retail FX and CFD trading. Yes, the novel coronavirus pandemic has jolted foreign exchange and CFD trading because of bust-and-boom movements brought on by extreme volatility in fear-led markets.
Volatility is the Mother of Opportunity
When it comes to trading, volatility is the mother of opportunity. It has always been the case for trading speculative markets. This explains why the global FX market daily turnover hit $6.6 trillion earlier this year, with a 40% increase in day-to-day trading volume compared to the last decade.
Pre-Covid-19, the forex industry was relatively muted. Economic outlook was more certain, with relatively subdued market volatility, while a steady stream of traders were trickling into the market. As such, industry focus was on diversification and future-proofing business models.
Volatility, the likes of which we have experienced this year, feels like a once-in-a-lifetime occurrence, and one effect has been a surge in customer acquisition numbers in FX. With trading platforms having spent recent years optimising their online capabilities, the proliferation of people looking for innovative ways to capitalise on market movements and take control of their finances while under lockdown has, in a sense, been the ultimate proof of concept for the industry.
A continuation of this trend is very likely as countries across the world fight to keep the virus under control. Even with a vaccine on the horizon, record levels of government debt, high unemployment, and negative interest rates are creating a cocktail that is driving many people to seek greater financial independence, whether they are novices or experienced traders. Turning to the retail trading market in these circumstances can make for extraordinary tales, both in terms of wins and losses.
A rise in trading in pursuit of financial independence
Undoubtedly, the world has never spent more hours in front of screens as it has this year with the importance of online access to practically anything taking center stage. Simultaneously, personal finance has been high on people’s agendas, with the impact of the pandemic posing an existential threat to the income of millions of people.
This has driven greater appetite to participate in online trading, and the unpredictability of the 24-hours news cycle has created both confusion, and a sense of opportunity with aspiring traders.
In the wake of widespread redundancies and pay-cuts, people’s outlooks are shifting towards wanting to best monetise their time. This entry of new players into the market has happened in tandem with more experienced traders and investors sensing an opportunity to grow their own portfolios. Thus, one outcome of this year appears to be a shared desire from people to take a far more active role in protecting and growing their finances.
An era of more experienced traders
A positive outcome of this year’s situation is that new entrants have been those keen to study and learn about the markets. Indeed, the challenges that the world has faced this year are so unique, that from an economic perspective, they warrant examination, and are being used as a learning exercise.
Reliable and trustworthy brokers have provided a safe environment for traders to both test and develop their trading strategies. In doing so, traders have been able to grow their skills by learning how to navigate volatility and beginning to execute more substantial trades. Time spent on practice is increasingly more valuable to protect oneself against riskier and lesser-known market variations, particularly in the current climate.
The next six months aren’t likely to be a smooth ride. Volatility is set to continue, bringing with it greater trading volumes and greater opportunities for trader upskilling.
Good news lies ahead – for the world, and the world’s traders.
It is unfortunate that traders and investors stand to capitalise on higher returns during devastating situations that create heightened volatility, but this is the truth nonetheless and part of the essence of investing. The outlook of markets remains to be an indication of where the world is also headed. And that is not all bleak. The stock market bounced back relatively quickly in March, with share prices rising sharply even though many of the world’s developed economies were and are still suffering one of the worst recessions in living memory. Why? This is because, theoretically speaking, share prices are based on anticipated future expectations and income streams.
A most recent example is seen in Airbnb’s extraordinary IPO, making it one of the greatest success stories in the 2020 stock market. The success is clearly not based on Airbnb’s growth in revenue over the past year (when travel basically came to a complete halt). Investor demand was fueled by the hope and anticipation that pre-pandemic life will return and the global travel industry will be revived.
The overall global long-term outlook is a positive one, and the pandemic and associated recession is expected to give way to an economic recovery. What is for sure though is that the road to recovery is a long one, and market participants are to actively assess and reassess their investment and risk management strategies. The key to being in a better position to exploit the opportunities that arise in the markets is to be better able to mitigate the higher risk that comes with the unpredictable volatility of pandemic times.
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