Due to the fact that the Forex markets are some of the largest and most substantial in the whole world – with billions traded each and every day – it’s no secret that trading in this market can be quite a lucrative new business idea. These aforementioned billions allow more and more Forex traders to easily access the markets and turn their investments into bigger and better things, with many preferring to trade online.
While the situation looks pretty healthy, it does beg the question though or whether or not this will be something that lasts forever, or indeed that can simply stand up to the ever-changing financial world? Here we consider just how future proof trading forex could be and whether or not events in the long term (from technical to geographical) or the short term (the EU referendum) could see these markets become more unstable or potentially inaccessible. Read on to find out more.
Forex Explained
In order to fully understand this, first we must consider some of the finer details involved in Forex trading. In very simple terms, Forex, otherwise known as foreign exchange and in some instances FX, is where different currencies are exchanged at a set price. These prices are speculative, with the aim being to profit when their values appreciate over time, the risk involved of course is that they don’t rise and depreciate.
Such trading is accessible 24 hours a day however, which is another big part of its appeal. The above is a relatively straightforward definition though and there are more options with Forex trading such as considering the spread, which is the difference between the bid and the asking price of the currency. There’s also a variety of platforms to use in order to trade, the use of which can depend on how proficient and skilled you are in Forex.
Future Risks?
So what could be problematic in the future? One of the biggest factors that could see Forex trading fail is socio-political or environmental disasters. When a country is involved in conflict the currency is affected and in extreme cases can become so weak that the country is forced to revalue or even change it – which needless to say really would have huge consequences on Forex trade.
When it comes to environmental disasters such as earthquakes, storms, flooding – in other words aspects we cannot predict or vouch for – the affected country can see the value of their currency plummet.
Technological Issues
With online Forex trading there’s a belief that as computer systems and programs become more sophisticated and advanced, there’s a risk that trading ultimately becomes irrelevant. This would be where the forecasts and analysis is completely balanced as the systems can account for all variables and potential changes – making trading redundant.
The reaction to this would be to replace Forex with something completely new, or which doesn’t focus on international currencies. A new trading system would be positive for those new to the investment world but could theoretically see many investors losing out significantly on their existing ones.
Brexit Problems?
An arguably more immediate situation that could affect Forex trading is the upcoming EU referendum, more often referred to as the ‘Brexit’, that will see the UK voting to stay in or leave the European Union. We’ve already seen the knock-on effects on the strength of the euro during the ‘Grexit’ crisis of 2015; the ‘Brexit’ simply brings about the uncertainty of this situation once again.
There has already been a notable amount of volatility between the exchange rates of the pound, dollar and euro in the run up to this event. Reasons for this include: the fear that the loss of the UK as a member state could signal a chain reaction of other nations deciding they want to leave; the following undermining of the EU as new independent currencies are introduced and the possibility that these subsequent currencies would also be quite weak at first. Also, there would be quite a significant timescale involved with all this, which would see the volatility continue for much longer than anticipated.
The unfortunate aspect of the ‘Brexit’ is that until this happens, no one can truly say what the outcome will be. At the moment all comments and predictions about what will happen to the Forex markets are purely speculation, it literally is a matter of wait and see.
Just Specious Reasoning?
To build on the final point of the above, a counter argument put forward by many is that future predictions in general are purely speculative and as such should be disregarded – or at least taken with a pinch of salt. This is especially apparent in the technology aspect with online Forex Trading, as while the systems would become more advanced, the theory is that so long as there are people involved the nature of the markets will always be subjective and unbalanced.
The Bottom Line
To summarise, it certainly would seem then that there’s quite an even split in the argument of whether or not Forex trading is future proof. Yes, there are genuine uncertainties in the near and also far future, however much of this is just theoretical and in some cases aspects simply beyond our control anyway.
With this in mind, it would seem that a sensible option would to just be more careful with your investments. In other words, to keep abreast of current affairs (political, technological and geographical) and not invest too heavily in currencies with any degrees of uncertainty – at least until their respective situations become more stable. As ever though, it’s important to remember that with Forex trading there will always be a small amount of risk involved so don’t be too deterred, just try to be smarter with your money.