Online Forex Trading and Market Efficiency

Filed under: Learn Forex Trading |

Screen shot 2013-07-15 at 10.21.20The Internet has completely changed the forex markets. Before the popular usage of the Internet, forex traders had to place trades over the phone, use rudimentary technologies to get prices, and sometimes even create their own charts by plotting price data onto a piece of paper! Before the Internet, there were of course far fewer traders, and no doubt, there was more inefficiency in the forex markets for traders to exploit.

 

Nowadays, literally anyone with an Internet connection and a computer (or mobile technology) can trade the forex markets. Anyone can look at price data on any forex pair and looks through years and decades to see what it has done in the past. But these conveniences all come with a price. The rise in the number of forex traders also means that the market has become more efficient. This means that many techniques and systems that have worked in the past might no longer be of use now, because people have over-used these systems.

 

Furthermore, the development of trading robots and automated trading has also had an effect on the forex market. Trading has traditionally been a human occupation, and as such, price movements have largely been a result of human emotions and mass psychology. However, now that many trades are being placed in such an automated and robotic fashion, the markets have become more rational and mathematical (to a minor extent), and as such, psychological processes are no longer enough to explain all of the movement in the forex markets.

 

Personally, I think the increases in market efficiency have made it harder to earn a living trading the forex markets. This is the ultimate irony, because as it becomes increasingly easy to participate in the forex markets, it is also becoming increasingly hard to make a profit!

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