For all the disruption this worldwide pandemic has caused this year, the forex market has not suffered as other industries have. With people around the world forced to stay at home due to lock downs and travel restrictions, many have looked for alternative means to generate income. One of those ways has been to trade forex, where the high degree of accessibility has greatly contributed to its popularity. This popularity only increased this year, adding to its already trillion-dollar market size.
Making forex trading even more appealing, more so in these financially difficult times, is the leverage it offers. This allows would-be traders to start trading even with a small capital (as little as $100) as they are using borrowed funds to increase the amount they can trade. This allows investors to easily trade at their desired amount compared to less liquid markets. Such an arrangement is possible due to brokers being willing to lend traders money so they can make bigger trades for bigger gains.
Consequently, brokers are now benefitting from a more robust forex market, with online trading platform eToro, for instance, reporting a 200% increase in trading volume in Q1 of 2020 as opposed to Q1 of 2019. As a whole, the monthly trading volume of forex from January to March topped $6 trillion – the first time it breached that mark in the last eight quarters dating back to 2018. This trend has largely continued in this pandemic as brokers, according to ADSS’s Fabian Chui, are “readjusting [their] margin and collateral requirements to protect both the clients and the business from adverse outcomes and losses.”
Another reason forex continues to be popular are the various ways to trade on the market, depending on funds and risk aversion. In particular, forex trading with CFDs, or contract for differences, is a popular option, as it lets people speculate on the movements of forex without actually having to purchase any currencies. This option retains the same leverage available in forex trading and magnifies it via a 1:30 offer in which an initial investment of $100 can net traders about $3,000 in profit.
The biggest difference, though, is that there is a built-in safety net when trading with CFDs, as traders trade on the price movement of the underlying asset instead of settling it. For those who are more risk-adverse, this would have encouraged them to keep trading despite the economic turmoil happening this year.
Small wonder then that the global foreign exchange market is trending upwards. In fact, 2020 is projected to be the beginning of a 6-year span in which forex will experience a 6% increase in its compound annual growth rate, thanks largely to increasing volatility in the forex market.
This, of course, is being buoyed by forex trading’s rising popularity, particularly in Africa where forex trading has increased by 477% since February 2020. Consequentially, African currencies like the rand have stabilized since the onset of this pandemic, and are surprisingly faring quite well against the U.S. dollar (the currency of last resort that has managed to hold steady despite this year’s uncertainties).
Indeed, 2020 has been quite favorable to the massive forex market, which already breached the $240 trillion mark last year. This figure dwarfs even the world’s $142 trillion GDP in 2019 and the largest stock markets, such as Nasdaq and its billion-dollar market.
Much of the trading, though, is still being done by large institutions, like JP Morgan and Deutsche Bank. But retail forex trading, where individuals trade currencies, has picked up in recent years, particularly this year.
And as the market opens it would be reasonable to expect that more women will rise through the ranks of forex – something Kathy Lien, Lydia Idem Finkley, and Stephanie Link have all done.
Similarly, with forex growing ever so accessible through online platforms, it might be a foregone conclusion that forex will build on the momentum it generated this year and get even bigger in 2021 and beyond.