Sunday, August 7, 2022

Can Blockchain Change the Forex Industry?


In the world of forex trading, the markets move quickly, with changes by the hour. With things updating all the time, it’s crucial that all trading is tracked and recorded appropriately. 

One way that the industry has managed to keep track of the shifting numbers is through blockchain. But what is blockchain? And what does this tech mean for forex? Here is a look at where it fits in and how it can be useful. 

What is Blockchain? 

Blockchain is a record-keeping network that links bitcoin and other types of cryptocurrency. It’s a public digital database that stores information about this virtual currency and it has the potential to replace traditional exchanges. The ‘blocks’ in the term ‘blockchain’ are the information and the ‘chain’ is the database itself. This database is stored across lots of computers. 

The information that’s stored on each block is information about financial transactions, who is making the transactions, and a unique code, which is designed to distinguish it from other blocks. As this is such sensitive information, it can’t be changed without the consensus of a majority of users. This means that the risk of fraud is minimal. However, while this is a secure database, anyone can see the contents of the blockchain.

While its main market is cryptocurrencies, it could prove useful for big names like Apple, which has already stated its interest in blockchain-based digital money. 

How is Forex Traded? 

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As forex trading has been in place as it is for decades, it operates relatively smoothly. This heritage makes it something of a dependable market to trade in. For those looking to get into the world of forex trading, therefore, they can start out with a practice run by opening a demo trading account, where they can practise trading in real market conditions. 

Forex itself is trading as it always has, which is through a base filled with a network of traders, bankers, brokers, and stocks and shares experts. It has sessions that open and close at locations across the globe at the same time, making it a market that is always trading throughout the day at some location in the world. 

The issue with this is that there’s not a single location where trading can be done, and where it can be regulated. While London is where the forex market is predominantly based, there are other locations, such as The City’s nearest rival, New York. 

The fact that it’s decentralised means that there are discrepancies between the different markets and how they’re governed. For instance, the Financial Conduct Authority (FCA) in the UK, or the Commodity Futures Trading Commission (CFTC) in the US have different regulations. Because of this, there can be a lack of transparency as there are different levels of inspection across different forex markets. 

How can Forex Benefit from Blockchain? 

blockchain in forex industry
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There are a few ways that forex could benefit from the blockchain. First, the issue of transparency. As blockchain is a public ledger, it’s visible to other users on the platform. This makes it more straightforward than the mixture of forex marketers and brokers. 

Also, it has the ability to impact on decentralisation. This is because, by nature, blockchain is a secure, permanent record of financial information. Therefore, it removes record keeping from one hub and opens up availability. 

It also could make forex more secure. Due to its digital nature, blockchain has been designed to be incredibly secure. The data stored on the blocks are not as easy hack, meaning that delicate financial details can be stored safely. 

However, blockchain has its drawbacks. For instance, while the decentralised nature of blockchain opens up a lot of possibilities, it also means that systems can’t be easily created by forex regulators who want to adopt blockchain. This is because they can’t go in and create a set of rules around this.  

Where we go next will depend on how ready the world of forex is to take the leap. It may take time before both are perfectly aligned, but it could be worth it in the long run. 

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