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The Evolution of Forex Trading


So much has happened since the 90s once the internet started to connect the world. The evolution sparked many new things that unfortunately attracted some of the dangers too. Yet, where there is danger there is a secret, an opportunity uncovered. 

Generally, we can do so much more today than when the forex idea began. Actually, currency exchange is as old as the currency itself, but we are not going to go that deep into history, books will satisfy that hunger for knowledge. 

It is the beginning of a new era today, and most experts think It comes with the birth of a new type of currencies – cryptocurrencies. However, since the possibility for individuals to trade on the forex market, many opportunities opened for us and how we can manage our wealth, and yet few remember what made it all possible. Before we go into that, new traders should know how it was back then, when traders had to really warm the chair to get things done. Essential trading things for which we need a couple of minutes now. This article will cover how traders felt forex evolution. 

Traders and Copy Machines

How do you know your strategy or an idea works? You test it on the forex market. More precisely, you backtest and forward test. Only veterans remember how that part was very, very tedious in the 90s. They had to print the chart on their target time frame on a long paper sheet, take the ruler and start drawing. The “future” of the chart was covered so they have to decide to go long or short according to their strategy, without bias. Then write down the results and move the “future” cover by one period. 

Indicators you see today were not born yet. Price Action analysis and moving averages that were manually drawn is what most traders used, no one had the luxury of complex calculus merged into indicator coding we can just snap onto charts with one click. Access to the forex market was very rare, in the USA many traded from their workplaces if their company is connected to the broker. 

Contract For Difference

This little contract evolved forex and not only forex, it opened a new era of individual trading. The 2000s began and in Australia, CFDs were available to individuals finally. The interbank currency market was at traders’ grasp. Opportunities emerged, a new way to trade – CFDs allowed to go long and short on anything. Not only that, one could trade with more asset value than their accounts could handle usually. This was the CFDs and leverage. CFDs were essentially price trading, a trader could buy or sell at one moment and close the position after, without holding the CFD underlying asset. Suddenly you can also go short, not just long as people used to with stock trading. Even today some people do not know this. 

This ability opened new dangers, the risk was exposed and the masses lacked the skills to manage it. Regulations stepped in and closed some of the freedom traders could enjoy with CFDs, especially in the USA. Today, something similar is unraveling with the crypto DeFi idea. Interestingly, regulators did not try to change the broker business model, which leads us to the next part.

Broker Evolution

ECN, DMA, A book, B book broker, and so on, all terms that evolved with IT and communications. Back then with individual trading in its infancy, you could choose 2 or 3 brokers at best. IG Group was one of the pioneers and still exists today, which cannot be said for many others. 

Spreads and liquidity was an issue, you really had to be careful what currency pairs to choose and when. Of course, fast trading strategies that are popular now are out of the picture. With IT on the rise, brokers adapted the technologies, new companies emerged creating competition. Competition curbed the spread, commissions, and generally cost of trading for individuals. 

But new problems emerged, one of the most controversial is the conflict of interest between brokers and traders. The business model of a B-book broker does not externalize the risk, in other words, when a trader wins a broker loses and vice versa. The leverage we mentioned above just explodes the number of losing accounts, since beginner traders do not handle money management well. This profitable business sparked many new brokers to open with great trading conditions we see today. Unethical marketing emerged and evolved attracting many people that went in for the gamble. And as usual, the house always wins. 

However, it seems real brokers that externalize the risk, or true A book brokers are rare. It is considered that only 2% of them exist today. Regulators reduced the leverage more and more as the solution, while the toxic business model is not discussed. Offshore, shady business and fake investing platforms networks spoiled the industry to the point forex today is commonly associated with a scam. 

The latest developments in cryptocurrency technology paved the grounds for crypto-based brokerage. These investing platforms are not regulated and the trust is not backed by any contract. Still, even some of the crypto-based brokerages are not legit, but there are exceptions of brokers with very good reputations. 

Trading Access Evolution

Computers became more powerful, affordable, and interconnected. The Wall Street floor went quiet. No longer agents yelled at the phone line, everything is digitalized now. Computers got portable, so was forex. Platforms on mobiles are giving the traders accessibility to forex trading limited only by battery and internet connection. 

Some may argue this is not a good thing. Traders can get obsessed with following the market, overtrading, and even get health issues. Because of this and extreme marketing, it is never easier to blow your account. But let’s talk about the real benefits.

Platforms became more powerful, analysis went deep, wide, and quickly. MetaTrader platform became dominant on the market with a very good range of indicators with the ability to customize almost everything. Traders recognized they can make many strategies and make custom indicators that facilitated the introduction process to forex. Many professional traders are made in a few years. 

Social Networks and Community

This activity demanded a community, and social networks and forums came into play. Ideas and knowledge are exchanged without limits in a single digital place evolving trading to a whole new level. Information was very accessible, however, as before, this freedom pulled new dangers. 

Scammers could hide easily while picking victims in search of information on how to make money out of forex. Identity problems on social networks and communication platforms allowed forex trading to be plagued in yet another way. Unethical activity is really hard to miss now, making real forex trading harder to realize its true benefits to beginner traders. 

Nowadays, traders that dig deep and want to learn forex trading have to do good research and filter all the false info and noise out of this internet mess. It all became a very big marketing stage with media, government figures, news, and hypes that just are not aligned with the best interest of individual traders. 

Still, all the new tech and community allowed other trading forms to develop, such as automated trading, copy trading, signals providers, various trading proprietary firms, crypto-related exchanges, and staking, ETF types, indexes, and so much more on the horizon. 

The Forex Market Now

Forex, as a market is here to stay, however not much has changed recently. We are witnessing record-high equity levels, and when we see a steady rise of equities forex is waning in volume. The capital is always shifting, in 2019 we have seen record low volatility in forex. In 2020 similar happened except we had a disturbance caused by the COVID-19 pandemic. Whatsmore, the rise of crypto is now taking part in that capital flow. 

There are many fundamental signs of the upcoming crisis that are actually good for forex traders. On the other side, it stirs the need for financial education on how to protect individual wealth, something that is not much talked about. 


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