If you head back into the UK’s recent history (at least prior to joining the Common Market in 1973), the region was heavily reliant on manufacturing and industry for much of its GDP.
However, membership of the world’s largest single market has allowed the UK to evolve into a de facto financial services leader, with this lucrative sector contributing £173.6 billion to the economy per annum. This represents 8.3% of the region’s total economic output, and this percentage continues to grow with every passing year.
But how exactly has fintech changed the financial marketplace, and what impact has it had on forex trading? Let’s get into it!
What is Fintech?
The term ‘fintech’ is a simple combination of the words ‘financial’ and ‘technology,’ so it should come as no surprise that it refers to the integration of advanced technologies into various financial services and systems.
The goal here is to disrupt the existing financial market for the better, potentially driving improved financial and economic inclusion throughout the developed world and minimizing the extent of middleman fees and transaction costs.
One of the prime examples of fintech is embodied by the blockchain and crypto markets, the former of which was valued at $3.06 billion at the end of 2020. Incredibly, the global blockchain market is projected to grow from $7.18 billion this year to a staggering $163.83 billion by 2029, at a CAGR of 56.3% during this period.
It’s blockchain’s decentralized ledger technology that underpins cryptocurrency, enabling you to own and transfer digital assets anonymously while negating the need for processing fees. Because it’s possible to access cryptocurrency tokens with just an email address and dedicated wallet, it has continued to drive financial inclusion in regions such as Africa and delivered far greater equality to the unbanked populations across the globe.
Other prime examples of fintech include the sophistication of mobile payments and forex trading, although we’ll touch on the latter a little later in the article.
What are the Pros and Cons of Fintech?
Before we explore the impact of fintech on the forex market, we thought we’d look at the potential pros and cons of the financial technology marketplace. These include:
- Pro #1: Fintech drives financial inclusion in developed and developing countries, as you won’t need a bank account or make a formal application to access digital currencies.
- Pro #2: Like blockchain, fintech typically focuses on disruptive and decentralized technologies, which disrupt the financial services landscape and makes markets more accessible to citizens.
- Pro #3: We’re now in the third stage of fintech adoption, which is seeing major financial institutions and lenders integrate fintech solutions into their platforms. This means that customers can benefit directly, and lenders can benefit from significant cost savings.
- Con #1: Fintech also introduces increased automation to processes, causing short-term job losses and labor market disruption. However, it may also create more senior and better-paid positions as the market restructures over time.
- Con #2: Fintech markets aren’t particularly well-regulated, creating challenges for some startups and making it hard for companies to operate safely and profitably.
- Con #3: Fintech solutions like cryptocurrency are largely virtual in nature and arguably lack tangible value, making them incredibly volatile and prone to wild price fluctuations.
The Last Word – The Role of Fintech on Forex
Fintech has undoubtedly driven the evolution of the forex market through the digital age, with this arguably providing the first example of financial technology impacting the marketplace.
Certainly, fintech inspired the evolution of the market and the rise of online brokerage sites, which provided aspiring and even part-time traders with direct access to the market and removed sizable barriers to entry.
It also minimized any associated transaction and trading fees while connecting traders across the board to advanced algorithmic and automated trading, key analytical tools, and important risk management measures that can help to curb losses.
Take stop losses, for example, which are automated tools that automatically close positions once they’ve incurred a predetermined level of loss. This can be set and managed in line with your selected asset and wider trading strategy, while it’s capable of capping losses in real time before they spiral out of control.
This also taps into the idea that fintech has unlocked automated and algorithmic trading, which has, in turn, minimized the impact of human error and allowed for more efficient (and profitable) trades over time.