How Blockchain Can Help the Forex Market
As blockchain technology continues to expand beyond bitcoin and the broader cryptocurrency sector, it's important to recognise that there are additional applications in the world of finance. In fact, this is something we pointed out last year in our post, 'Vitanje Hosts Forum on Future of Blockchain'. In said post, blockchain experts were quoted indicating that the technology would continue to be "most useful in finance."
This can mean a lot of different things: use by banking systems, more applications in everyday transactions, and so on. But it can also be tied to the potential for blockchain technology to be applied to investment markets. This is something that is already being discussed fairly commonly with regard to forex trading. In fact, it's even being implemented. Last October, Yahoo Finance wrote a story about the mutual fund giant Vanguard Group partnering with tech providers to produce a blockchain-based peer-to-peer currency trading network.
With these kinds of options starting to emerge, it's worth considering how specifically the blockchain can help the forex market. The following are a few potential benefits that come to mind.
The headline benefit for providers offering blockchain-based forex trading is likely to be the lack of fees. On their own, blockchain transactions don't require fees. More importantly though, with specific regard to forex trades, the blockchain can cut investment banks out of the picture - which in many cases will mean cutting fees too. The appeal of peer-to-peer forex trading such as what Vanguard Group is experimenting with, then, is not flexibility so much as affordability. Giving investors more autonomy over their currency trades is almost certain to mean taking hefty fees out of the picture.
This is likely to have an impact beyond how it affects existing forex traders as well. Blockchain-based services advertising low-fee or no-fee investment are also likely to attract more first-time traders over time.
Speed is also going to become a crucial benefit, and not just for the sake of convenience. Generally, a trade conducted via a capable blockchain is going to be faster than one that's done through a traditional broker or bank. Hover, the nature of the forex market also comes into play here.
This is because the factors that affect currency values often involve specific announcements or sudden market turns that require quick reactions. An economic calendar by FXCM conveys some of the types of things that can impact forex traders more specifically, listing economic conferences, earnings reports from around the world, interest rate decisions, and so on. These are economic events that can produce news that impacts currency values almost instantaneously - making the ability to conduct quick trades via blockchain all the more appealing.
In a more general sense, the transparency offered by blockchain networks is also likely to appeal to a lot of forex traders. A blockchain overview by Built In does a nice job of summing up the transparency benefits traditionally associated with blockchain tech. It states clearly that in blockchain transactions, "a transparent ledger of changes preserves integrity of the document, which creates trust in the asset." This can be applied to forex trades as well. With all activity recorded in the blockchain ledger, there is absolute clarity regarding all transactions that take place. Each trade can be marked down exactly as intended.
Considering these simple but significant benefits, as well as that there are already examples of blockchain tech being used for currency trading, the tech's widespread migration into the forex market seems almost inevitable.