Functions of the Retail Forex Market
The retail Forex market became very popular after the development of the online trading technologies. Millions of new traders are attracted to Forex each year. They try to earn profits by trading the currencies, developing the new intraday strategies, and gaining on the long-term trends. But why does the retail FX market exist? Is it only a way to earn money for the brokers and some lucky traders? Here is the list of some functions — obvious and not — that are performed by the retail Forex market:
- Earning opportunity — this is probably the most popular, obvious, and important function of the retail Forex market. It provides the earning opportunity to traders, brokers, affiliates, webmasters, marketing companies, and a lot of other online industries. Without a promise of profits, the retail Forex market would be limited to a simple exchange of the physical or current-account cash.
- Extra liquidity — this is definitely a positive function of the retail currency market. Although not many traders use huge amounts of capital in Forex, the total sum of the money provided by the retail customers adds a good chunk of liquidity to the Forex market.
- Extra volatility — a not very positive function at a first glance. The retail Forex market makes the rate movement less smooth and more volatile as traders prefer short-term positions. This leads to sharp reaction on the daily news and technical signals. Excess volatility is bad for the long-term traders, but it can be good for those who know how to benefit from such markets.
- Social function — many communities were formed around Forex trading. Traders prefer to get help from other traders and they also like to share the knowledge related to Forex.
- Technical strategy development — popularity of Forex trading, and especially the online and automated versions of such trading, led to the creation of thousands of automated trading strategies. Based on technical analysis, some of such strategies can be applied not only to Forex trading but in many other industries.
Of course, this list cannot be considered as an exhaustive one, but these functions are the main attributes of the modern retail FX market in my opinion.