By Jay Mawji, managing director of the global trading provider INFINOX

 

Not all of the pandemic’s legacy is as visible as face masks and half-empty commuter trains.

While lockdown living has changed the way many people – and their employers – feel about the need to travel into city centre offices every day, other equally fundamental shifts are less obvious.

One of these is the surging demand for online trading. As recently as a decade ago, investing in individual stocks or trading forex was the preserve of a wealthy elite.

But the arrival of online trading put the world’s financial markets within reach for everyone. Meanwhile the evolution of Contracts for Difference (CFDs) – a cost-effective financial instrument based on the price movements of an asset – allowed investors to gain market exposure for a more modest initial outlay.

Coupled with rapid improvements in both technology and trading infrastructure, the popularity of trading has grown steadily over the past few years.

Pandemic provides perfect storm for trading

But the trend was supercharged by the arrival of the global pandemic in 2020. COVID-19 triggered a ‘perfect storm’ of factors that together prompted a spike in demand for online trading.

INFINOX recorded a 61% jump in revenue and a 28% increase in trading volumes during the course of 2020. By the end of the year, investors had traded $553bn of assets through our platform – and demand is showing no signs of slowing in 2021.

The surge began as the first wave of the pandemic plunged equity and currency markets into a period of intense volatility. Rapid falls in asset values were followed by equally sharp rises – and this yo-yoing created opportunities for investors keen to capitalise on market gyrations.

At the same time, lockdown restrictions forced millions of people to stay home – simultaneously placing time and disposable income in their hands as there was no scope to go out and spend.

With interest rates cut close to zero in many countries as central banks sought to stimulate reeling economies, the lack of return on cash led many aspiring investors to try their hand at trading for the first time.

Transformative technology

The platforms that capitalised best on this rising demand offer a seamless user experience across multiple devices – desktop, tablet and smartphone – and access to live price data and charting analytics.

The best platforms tend to run on the MetaTrader 5 multi-asset trading software developed by MetaQuotes.

This enables users to trade forex, exchange instruments and futures instantly and easily, and offers a huge suite of tools they can use to inform their decisions. With no fewer than 35 indicators to pore over, traders can try both technical and fundamental analysis of market trends before making their investments.

The software can also be used to trade automatically by using trading robots and trading signals. It comes in both desktop and mobile versions – and can even be accessed via a web browser without the need to download software.

The power behind the scenes

While software governs the way the trader interacts with their chosen broker platform – and is instrumental in shaping the user experience – the infrastructure behind it is as vital as it is invisible.

Often described as the ‘white label’ partner of brokers, liquidity providers are wholesale platforms that ensure there’s enough liquidity in the markets – in other words that there’s enough volume of trading so trades can be done seamlessly.

Liquidity providers like IX Prime keep the market functioning, by buying from those wanting to sell and selling to those who want to buy. This cycle creates market liquidity, which is especially vital in forex.

Currency pairs can be volatile, and often change by the second. Therefore any delay in the time it takes to execute a client’s trade can cost them money. A large market maker will have high forex liquidity which will eliminate the risk of lag.

The mechanics of a liquidity provider also mean that prices can be competitive. When demand is high and supply is low, the price increases and vice versa. Market makers have the power to adjust prices based on supply and demand, allowing traders to not only get better quote prices but also better price margins.

Razor-thin margins in forex trading can make the difference between a profit and a loss, meaning market makers don’t just underpin the trades of millions of blissfully unaware investors – they may also make their trades more profitable.

The unique set of pandemic-related factors that sparked the current boom in online trading may not be repeated in a hurry. But the technology and market innovation that enabled it are here to stay, and with a new cohort of investors taking their first steps in trading, their future is bright.