Five Key Reasons on Why Forex Market Will Continue to Grow in 2010

Growth. It’s not a word necessarily associated to the financial markets in recent times. However, when it comes to foreign exchange – it’s a continuing key trend for 2010 and is a direct by-product of improving access to the world’s largest 24 hours a day market. We spoke to a number of market participants at the recent Traders Expo in New York, and found a general consensus of views that the flow of new entrants to the market is primarily being driven by a wave of equity traders looking to enhance their returns and shifting their focus to Forex. Like many of my peers, I believe this growth in the retail market will continue in 2010.  The question is why, and the answer is fivefold.

Firstly, for sophisticated investors who are looking to put a proportion of their investments into a diversified asset class, Forex offers significant advantages, in particular because of its 24-hour liquidity, tight spreads and easy and ready access.

Secondly, the fundamental principles of trading forex are similar to those required for other asset classes. For example, active traders who are following technical and fundamental analysis of the global markets are well equipped to take a view on the direction of the forex markets. These traders are able to diversify their investment portfolios from traditional bond and equity assets to forex, thus spreading their risk more effectively.

Thirdly, advances in technology are improving and enhancing the client and trading experience – whether that be the use of stop-losses or trailing stops. Clients can execute their trading plans using combinations of orders to effectively manage their currency risk. Sophisticated investors are increasingly wanting to make their own financial and investment decisions and are demanding fair and transparent pricing and access to the latest market research like that which is provided on several platforms.

Fourthly, the continuing demand for algorithmic trading systems will drive future growth. After accounting for less than one per cent of trades in January 2009, algorithmic trades accounted for 25% of all trading volume by January 2010 and will continue to attract new entrants to Forex markets (although they should only be used to supplement trader’s existing trading / investment strategy).

Lastly, the growth in popularity of Managed Account programmes are adding to the overall popularity of Forex markets. Managed Accounts are targeted at investors who want to gain exposure to forex without actually having to trade themselves – but still ensuring they have full access and control over their capital. All in all, retail FX has a bright future, and the case for long-term and sustainable growth in retail FX is clear and compelling.  The key to taking advantage of this potential is to educate the financial community on the benefits of this emerging asset class, and clearly demonstrate how it can add diversification value to an investment portfolio.

About the Author:

Mark Hanselich, MPharm - I try to be as versatile as possible. I graduated in pharmacy, work as journalist, play soccer, have my own wine cellar and can communicate in six languages. I'm also personal development author and internet marketing specialist. Together with Mr. Daniel Maxoff I run the Website Anioc.com, dedicated to personal development, health and all the good things in our lives. You can also follow me on Twitter.