MoneyMagpie

Aug 20

The technology behind trading forex

Reading Time: 2 mins

Whilst there are plenty of vast and diverse financial markets in the world, few are as lucrative as the foreign exchange. Known colloquially as the forex market, this sector is worth in excess of $1.93 quadrillion and is estimated to be nearly 2.5-times bigger than the world’s total GDP.

This market is underpinned by increasingly advanced and evolving technologies, which have revolutionised the sector, removed many barriers to entry and made the foreign exchange accessible to a mainstream audience.

In this article, we’ll explore three of the most seminal technologies in further detail, whilst asking how these have empowered the market and enabled it to enjoy consistent growth.

 

  1. Online Trading Platforms

We’ll start with online platforms, which have played an influential role in bringing forex trading to the masses.

These platforms essentially serve as online brokerage platforms, and they’ve evolved over the years to replace the corporeal brokers that used to serve as middlemen in the marketplace.

One of the most renowned names in this space is Oanda, which is a comprehensive platform that offers access to forex trading and a vast array of additional asset classes.

This type of platform also offers vast learning resources and demo accounts, enabling traders to simultaneously enhance their theoretical knowledge and leverage this to build practical experience in a simulated environment.

 

  1. Mobile Trading Platforms

On a similar note, we’ve also seen the emergence of mobile trading apps and platforms since the turn of the century.

The most famous of these are the MetaTrader series of apps, the first of which was developed by the MetaQuotes Software house back in 2002. The ground-breaking MetaTrader 4 (MT4) app was released as a significant enhanced tool in 2005, and despite the subsequent release of the MT5 this remains the standard-bearer for the industry as a whole.

These apps can usually be accessed through your choice of online brokerage site, enabling traders to access their account portfolio seamlessly across different devices.

This has taken the concept of online trading and elevated it onto an entirely new level, whilst allowing individuals to realise the full potential of the global forex market.

 

  1. Trading Algorithms and High-frequency Trading (HFT)

As online trading has boomed, we’ve also seen the rise of algorithms to help underpin effective and automated trades.

An algorithm is essentially a set of specific trading rules designed to complete a defined task, and in the case of forex trading these rules include price, timing or quantity.

The benefit of algorithmic trades is that they’re well-informed and automated, meaning that they eliminate potentially damaging human emotions from decisions.

At the same time, this technology also underpins so-called high-frequency trading (HFT), which is characterised by an extremely fast rate of order executions.

Whilst this type of trading is deemed controversial as it’s capable of artificially manipulating the marketplace, it’s capable of triggering thousands of trades in a matter of milliseconds and is ideal for experienced investors.

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