Retail foreign exchange trading

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Retail foreign exchange trading is a relatively small but rapidly growing segment of the larger foreign exchange market where individuals speculate on the exchange rate between different currencies.

This segment's genesis and subsequent explosive growth was facilitated by the advent of the internet and dedicated electronic trading platforms which allowed individuals to access the global currency markets. In 2016, it was reported that volume from retail foreign exchange trading represented approximately 5.5% of the entire foreign exchange market (Approx $282 billion in daily trading turnover).[1]

Prior to the development of forex trading platforms in the late 90s, forex trading was restricted to large multinational corporations, asset managers, and financial institutions[2] who transacted - typically by telephone - in trades sizes of a minimum of approx $1,000,000 USD, and typically greater than $5,000,000.

Online retail forex trading didn't really exist until the late 1990s and was facilitated & accelerated by the confluence of several concurrent factors of that time: 1. Development of the internet & widespread adoption of high-speed broadband, 2. development of more powerful trading software, 3. FX brokers allowing trading on margin, and 4. adoption by FX brokers of the practice of allowing FX trades in much smaller trade sizes, typically approx $100,000 USD and even as low as $10,000 (in the case of the FXCM "minis") which was more palatable to retail FX traders.

Today, traders are able to trade spot currencies with market makers on margin. This mean they need to put down only a small percentage of the trade size and can buy and sell currencies in seconds.

History[edit]

The years 1996-1999 saw the first generation of forex online trading platforms. As a result, foreign exchange and customers' markets flourished. Web-technology not only allowed retail foreign exchange trading to foster easy and fast ways for customers to access the markets, but also currency trading while making trades from their own computers.[3]

Amongst the first to offer online forex trading via the open internet were Money-Garden (later rebranded as MG Forex), CMC Markets, Midas Fondsmæglerselskab (later renamed Saxo Bank), Shalish Capital (later renamed FXCM), GFT Forex, and MatchbookFX which pursued an FX ECN model.

The software development of trading platforms has seen a number of stages: Initially, trading platforms were based on basic programs, known as client applications, downloaded to computers. Most of these programs were developed in-house, or white-labeled by an outside vendor.

This was followed by the development of easier-to-use interfaces and advanced features such as charting and technical analysis tools.

The next stage saw the move to web-based platforms and mobile devices such as tablets and smartphones. Since 2010 there has also been a focus on developments to integrate automated trading tools and social trading into the forex trading platforms.

Fraud[edit]

Retail forex trading has been promoted by some as an easy way to make profits and has thus been the focus for a number of foreign exchange frauds.[4] In response, financial regulators in a number of countries have introduced restrictions or provided warnings about this type of trading as well as legal actions against perpetrators.[5] However, due to the decentralized nature of currency trading and the easy global access to the internet, a number of brokers are based in less restrictive jurisdictions.

See also[edit]

References[edit]

  1. ^ Triennial Central Bank Survey (April 2016), Bank for International Settlements
  2. ^ Waters, Betsy (August 14, 2008). "The Rise of Retail Foreign Exchange". TradingMarkets.com. The Connors Group, Inc. Retrieved 14 June 2013. 
  3. ^ "History of Retail Forex". Forex Capital Trading. Forex Capital Trading Ltd. 2009. Retrieved 14 June 2013. 
  4. ^ Karmin, Craig (2008-01-12). "How a Money Trader went Bad; Bets on Currency Prices Become 'Fraud du Jour' Amid Regulatory Holes". The Wall Street Journal. Dow Jones and Company. p. B1. Retrieved 2008-01-12. 
  5. ^ "COMMODITY SOFTWARE VENDOR CHARGED WITH VIOLATING CFTC ORDER". CTFC.gov. Retrieved 13 December 2013. 

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