In 2021, the average daily turnover at London’s foreign exchange market reached a record high of £2.3 billion. Trading of swaps, spot, and forward products increased significantly, causing UK forex volumes to rise by 24% as compared to 2020. And volumes continue to surge, which has in turn increased demand for the buying and selling of currencies.
How might we explain this wide-ranging spike in forex activity in the UK?
Pandemic Boosted Interest in Trading
Retail trading in general surged in popularity due to the pandemic. As was described in a World Economic Forum report, the global health crisis significantly reduced economic activity, which led to increased unemployment rates as businesses struggled to generate enough revenue to support operations. Because of these widespread job losses, many workers needed to find new ways to make money.
Interest rates in the UK were also lowered during the pandemic. This meant that money stored in banks would struggle to grow against inflation, giving people an incentive to attempt to preserve and/or grow their wealth elsewhere. Additionally, because the crisis caused greater market volatility, people saw opportunities to generate high profits within short time periods through trading markets. For those who had lost their jobs or suffered from lockdown boredom, this had great appeal.
Forex Is An Affordable Trading Option
The foreign exchange trade has one big advantage over other financial markets: affordability. Investors usually need larger amounts of capital to generate good returns on securities trading. Cryptocurrencies, on the other hand, can be bought into with small amounts but tend to come with greater risk of losses. Compared to other investments, the forex market tends to be somewhat less volatile. But it is also the prevalence of leverage programs that makes forex trading accessible to the average investor.
Leverage in forex enables traders to stake borrowed capital. Using leverage can thus amplify profits on a trade, if the trader takes a good position. However, if the trader takes a bad position, leverage will also amplify their losses.
Technology Made Trading Easier To Access
The recent popularity of retail trading can also be attributed to increased digitization. Many new trading apps, websites, and software programs have appeared on the market in the past decade, helping users trade stocks, forex, and cryptocurrencies from the comfort of their homes. Some apps even automate the process to make investing easier for beginners. For instance, the investment app Plum uses AI to analyze user spending. It then uses its insights to determine how much to allocate for savings and investment.
Most forex platforms go the extra mile to ensure that users can make informed decisions while trading. Forex brokers online connect the traders on their platforms to high-quality trading software, with the forex brokerage website FXCM and its connection to the MetaTrader 4 platform representing arguably the most prominent such arrangement. The MetaTrader 4 platform is known for its charting and analysis tools, which can help users deepen their trading research; it also supplies a demo trading function for beginners seeking to learn the ropes.
Staying Safe While Trading In Forex
It is also important to note that the UK has measures in place to protect forex traders. To ensure that their investments are safe, forex traders can look into brokers that have approval from the Financial Conduct Authority (FCA). Investments in FCA-approved institutions are protected under the Financial Services Compensation Scheme. Should a financial institution fail, FSCS will step in to return the money lost to investors. FSCS will also pay compensation to investors who receive poor investment advice from FCA-approved institutions. While one shouldn’t expect this sort of thing to come into play, it’s no wonder such measures have proven to be reassuring amidst the general turmoil and uncertainty of the pandemic and ensuing economic difficulties.
Because of those economic difficulties throughout the pandemic, many have struggled to remain financially stable, However, thanks to developments in trading conditions and technology, the average person now has greater access to income-generating opportunities, including forex trading.
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