The forex market is the world's most liquid market with an average daily turnover of over $6 trillion. But it wasn't always so lucrative. Twenty years ago the bar for entering the global forex market was high. Trading was expensive, complex, and inconvenient. Trading platforms were mostly the dominion of established banks and large financial institutions.
Over the past two decades, the industry's grown dramatically by developing innovative technologies, adapting to changes in regulatory requirements, and adopting more user-friendly platforms that have forever changed the way people trade.
We'll take a closer look at how the forex industry has evolved over the past twenty years, and the milestone that made it accessible and affordable to one of the largest audiences in any industry.
Early 2000s: The Dot Com Era Revolutionizes Trading
During the early 2000s, the average daily turnover in the forex market was slightly below $2 trillion. That virtually doubled by 2010 thanks to online trading.
While electronic trading had begun in the late 1990s it only allowed for the execution of inter-dealer transactions. That meant whenever you wanted to place a trade, you'd need an Inter-dealer broker (IDB), to place the trade for you.
The .com era brought a new dawn for traders. By the 2000s as internet use became more widespread across the globe and accessessible to more people, accessing the Over The Counter (OTC) forex market through an electronic trading platform became a possibility for many wishful traders.
But it wasn't all that easy, as opening an account with a broker was still a cumbersome and expensive process, but having an account gave traders instant and immediate access to the global financial markets.
That's when traders flocked to forex and CFD trading in unprecedented numbers. Retail forex trading saw an exponential boom. Traders loved that they had more control over their trades. They could connect to the internet and place the trades themselves anytime they wanted to, without a broker placing a trade on their behalf.
This was a monumental shift and one that sent tidal waves across the industry, benefiting all its players; financial institutions, intermediaries, and individual traders alike. For the first time, trading was no longer exclusive to the wealthy, as entry prices dropped thanks to liquidity providers and increasing competition among brokers.
Mid 2000s: The Introduction of MT4 Changes the Game
In 2005 a new player entered the markets and forever changed them, a new forex trading system that went by the name of MetaTrader 4 (MT4). Released by Metaquotes the electronic trading platform was designed especially for online forex trading brokers, and far surpassed the capabilities of its predecessor, MetaTrader which was released in 2002.
The majority of brokers started offering the easy to download and extremely user-friendly MT4, with all its advanced charting features and technical indicators that traders need to fulfill their needs and execute their trading strategies making forex and CFD trading quicker and more convenient than ever before.
Early 2010s: New Technologies Advance Traders' Possibilities
Electronic trading got a further boost in popularity with the evolution of high-frequency trading automatically performed by computers and the ability to create custom indicators.
The combination of electronic and high-frequency trading meant that computers could perform forex and CFD trades in split seconds, simultaneously buying and selling to benefit from the spread or trading opportunities.
By the mid-2000s, many financial institutions had designed systems and engineered software to perform high-frequency, algorithmic trading, to automate trading based on their programmed trading strategies. This only advanced and increased, becoming a norm by the early 2010s.
MetaQuotes' MQL4 and the follow-up MQL5 programming languages allowed traders to program their strategies and algorithms to perform trades automatically for them through Expert Advisors (EAs). They could also develop custom indicators and scripts.
Algorithmic trading (automated trading) is still one of MT4's strongest features, allowing traders to develop, test, and apply EAs and technical indicators while eliminating any obstacles presented by analytical and trading activity.
Late 2010s: On the Go Trading Appeals to a New Audience of Millennials
As apps took over the world and people became fixated to their smartphones, the late 2010s saw the rise of mobile trading, and for the first time ever, retail traders could trade on the go.
Being able to trade on your phone or tablet added a level of ease and convenience to trading that was extremely compatible for the younger and busier generation of traders, who couldn't dedicate their days to a fixed desktop.
Platforms like MT4 and cTrader became available on app stores for both iOS and Android users. This brought in a whole new wave of traders, who could now manage their accounts, anywhere and at any time.
Despite a spike in mobile trading, all platforms remain accessible on desktops and through instant web-trading, hence catering to a wider audience and allowing traders to choose their preferred ways to succeed in trading.
2020: A Pandemic Proves the Industry's Capabilities
The unprecedented covid-19 pandemic of 2020, which sent the majority of the globe on lockdown allowed trading to stand-out, given its extreme head start on non-online industries. In combination with the fact that a large number of people now had more free time, and many needed to make money outside their jobs, the online trading industry took center stage.
By 2020 account openings have become fast and easy, thanks to the introduction of automated registration processes through programs such as Jumio, making it less time-consuming and intimidating for new traders. Minimum deposit requirements have significantly dropped from the early 2000s, and KYC (Know Your Customer) procedures are easier and quicker, despite more robust regulation.
Education has also seen vast improvements. Videos with high production value help traders understand the industry, trading academies are available on broker's websites and webinars have become a necessity to keep traders engaged.
2021 and Beyond: The Future Looks Promising
A couple of decades ago, opening a forex account was an extremely cumbersome procedure that required multiple steps, plenty of money, and a daunting level of required documentation. Trading took place on physical trading floors and was exclusive to the wealthy and professionals. That's not the case anymore.
Today online trading has become the norm, and is adopted by men and women from different ethnicities, backgrounds, professions, religious preferences, and classes. Choosing to trade is now a personal decision, and is far easier to achieve with access to education, webinars, e-books, mentorships and countless online resources that help any individual understand the process before investing any money.
The number of global traders is continuously on the rise, and the industry, which has grown far beyond forex introducing CFDs on many asset classes (commodities, indices, stocks, metals, energies to name a few) will continue to evolve with every new innovation and technological development introduced to the markets. This will surely fulfill the growing demand created by traders looking to find new and innovative ways to make trading more fun, easy, and profitable over the next two decades.