Foreign exchange is dynamic and has advanced significantly from the dawn of civilization. The sector has been profoundly impacted by the development of technology and, consequently, the improvement of communication.
The forex rates have changed as a result of improved data analysis and more accurate estimates. The banking sector is only one of many other industries that technology has significantly impacted.
Here Are a Few Examples of How Technology Has Impacted Currency Exchange Rates.
1. Increased Competition
Because of the platforms that more individuals may trade on thanks to technological innovation, the foreign exchange market is now more competitive. Both seasoned and inexperienced forex traders can use these platforms. Increased competition has an impact on the exchange rate of currencies.
The development of cryptocurrency platforms has also been facilitated by technological improvement. These online venues are not limited by place. Today’s online systems, for instance, allow you to execute currency exchange in Canada while you are in the USA.
2. Improved Trading Tools
Through the development of more user-friendly trading tools, technology has also increased accessibility to international trade.
These are made to help traders make the most of their techniques. The exchange market is now easier to conduct business in thanks to online technologies. Today, some software targets speculative purchasers, while other algorithms can assess a trade’s risk.
3. Quicker Transaction Speed
The processing speed of computers is faster than that of humans. Computers sift through enormous amounts of data, interpret it, and provide updates on the fly when it comes to data updates in the foreign exchange market.
Processing price charts and other new updates used to take some time before being distributed. However, processing quotes for stocks, futures, currency pairs, interest rates, and other options are now simple thanks to contemporary technology.
4. Live Market Prices
Brokers and a select group of individuals with access to the stock exchange used to be the only ones who had access to live market values. Today, almost everyone may access live market prices on the Internet thanks to the advancement of modern technology. Access to exchange markets is available on some online trading platforms.
5. Real-Time Order Execution
An order is executed in foreign exchange when it is lodged, not when it is placed. It marks the end of a sale or purchase. Traditionally, a broker would decide how to proceed after receiving an investor’s execution submission. But with the advent of modern technology, order fulfillment is now quicker and more effective. The cost of execution has significantly decreased as a result.
How Has Fintech Transformed Forex?
The emergence of new platforms for trading commodities and making cross-border payments has led to the “democratization” of FX. According to research by the Bank for International Settlements, this increased FX market activity to $6.6 trillion per day by 2019. (BIS). This increased from $5.1 trillion every day only three years prior.
All of this is set against the backdrop of a historically successful time for fintech. According to KPMG’s Pulse of Fintech report, 2021 was an “exceptional year” for the industry, with significant investment and a record number of deals in each major area. This is made clear in Visa’s $929 million agreement with currency payments platform CurrencyCloud, which was made public last summer.
However, there is still a perception that commercial forex lags behind despite the advancements made in the retail market.
Seth Phillips, founder and CEO of the FX hedging platform Bound, claims that “few areas of financial services have stayed so resolutely analogue, for so long as commercial foreign exchange.”
“True, the early 2000s sector liberalization gave rise to a number of non-bank FX providers and increased competition.
However, the majority of the new breed of FX brokers were former bankers whose business model was to beat bank prices while still making a killing by levying a variable and opaque markup on the customer’s exchange rate as opposed to a clear-cut and easily comparative commission.
Commercial FX is still primarily conducted over the phone today, which allows brokers to offer a customer a favorable exchange rate one day while benefiting from a large profit margin the next when the customer doesn’t have the time to gather and evaluate various quotes.
“Wise (previously Transferwise), Revolut, and other successful fintech, which offer clients a fixed, low fee for each transfer, have upset this model for retail customers — generally those sending money to family overseas.”
With new technology that enables a better user experience, quicker trading, and more transparency around pricing, Phillips feels that digital disruption may finally be making its way to commercial FX.
How Has Fintech Transformed Forex?
It is certainly possible that blockchain may be the new frontier for forex trading as its popularity continues to soar, enabling the platforms and technology that allow for further digitization. And it is in this emphasis on transparency that it can be most advantageous.
Blockchain generates a public ledger for each transaction, in contrast to traditional forex trading when deals are mediated by a broker and there is typically little transparency surrounding trades. But blockchain’s sheer nature itself might also be a concern.
Blockchain enables cryptocurrencies and, more recently, NFTs since it stores data across a network of computers, requiring a consensus before any changes can be performed. However, because it reduces the amount of control that a regulator would need, this might prove to be a roadblock for the forex industry.
In any event, many think that commercial trades hold the key to advancing the digitization of forex because they can further eliminate friction, speed up and reduce the cost of forex trading for brokers, and increase client transparency.
CEO of MilltechFX Eric Huttman states: “We must concentrate our efforts on using fintech to support the growth of the real economy. Treasurers and asset managers are the first to be affected since their FX settings might result in significant operational inefficiencies that have a negative impact on their bottom line.