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The online trading marketplace has been on a rapid growth trajectory over the last few years due to advances in technology. The introduction of browser-based and mobile trading platforms has boosted the growth of online trading communities, extending its reach to new demographics, such as women traders and those from jurisdictions that are not traditionally considered to be active financial centers.
On the other hand, regulation continues to restrict trading in some markets and the rate of internet penetration is a notable driver of growth in the market. So, what exactly has been influencing growth in the online trading marketplace and what does the immediate future hold?
The internet is a crucial element of online trading. Some online trading markets require strong internet connections to execute trades at the required speed. The Forex market, for instance, is dominated by institutions and hedge funds that engage in high-frequency trading. Therefore, for retail traders to be able to experience similar levels of instantaneous trading, they need connectivity to high bandwidth internet.
Not all parts of the world have 3G or 4G internet connectivity, and this limits online trading in such regions. Therefore, countries and regions that have good coverage of high speed internet attract more online traders. The greater the number of internet users, the greater the proportion of online traders in a given region.
For instance, according to a report compiled by BrokerNotes, one in every 167 internet users in the UK is an online trader. The UK is one of the most concentrated markets in terms of the number of online traders to the number of internet users. Currently, the global figure stands at 1 online trader in every 396 internet users.
While online trading is generally a global marketplace, different countries have imposed unique regulations that determine whether some of the markets can be active in their territories. For instance, spread betting and CFDs trading are restricted in the US but widely accepted in the UK and its environs. Such regulations have limited online trading activity in some markets and boosted it in others. Some European financial services regulators have banned the use of leverage on products such as CFDs and Forex, or have at least banned the promotion of the facility. This may account, in part, for the significantly higher numbers of UK online traders found in the BrokerNotes study, in comparison to other EU jurisdictions.
Loading money to an online trading account is a simple task in many countries. Bank wire transfer and credit/debit are the primary methods that brokers prefer, but many online traders are not compelled by this idea given the rising cases of credit card fraud, identity theft and general cyber security threats. Some brokers have added popular online payment methods to their platforms to accommodate such traders.
Commonly used online payment services such as PayPal (PYPL), PaySafeCard’s Skrill and Neteller are available on many online brokerage platforms today. Furthermore, payment services such as CASHU, which is popular among clients in the Middle East and North Africa have made broker services accessible to people in these regions.
The Introduction of Mobile Trading Platforms
The global online trading market has grown rapidly over the last few years. This is partly due to the emergence of in-app trading platforms that can be downloaded to mobile phones and tablets. With the cost of computers too high for some people, affordable smartphones have provided an alternative for traders in the emerging market regions.
All brokers are now launching online trading platforms alongside their mobile trading versions and this has addressed a market that would have otherwise, been locked out of the online trading community. Already, mobile browsing has surpassed desktop browsing.
And while most traders still prefer trading via a desktop platform, in-app trading seems to be growing more rapidly than its web counterparts. In-app trading platforms can also execute trades at exceptional speeds even when internet connection is not as strong. On the other hand, web-based trading requires a strong internet connection to enable smooth trading.
The Emergence of New Markets
A few decades ago, whenever someone mentioned online trading the first thing that came to mind was Forex trading. However, over the last ten years, a lot has happened in the online trading marketplace. First up, binary options have become some of the most interesting short-term trading instruments in the market. And while they are very prevalent in Europe, Asia and Latin America, countries like the US have maintained stringent regulations on those involved in the binary options market.
Another market that came to life during the last decade is crypto currency trading. This market has become one of the most popular markets to trade in over the last few years due to the success of Bitcoin. In a recent report by Forbes, up to 15 hedge funds have targeted the crypto coin market as they seek to capitalise on the growth, which some believe could deliver returns of as high as 84,000% in the next few years.
In a separate report, billionaire investor, Michael Novogratz, revealed to CNN Money in April that he has invested 10% of his portfolio in Bitcoin. He went on to stress that investing in the crypto currency market has been the best decision he has ever made in his investment career.
In general, the emergence of these markets has attracted both new and existing traders to the online trading community. This has stretched the boundaries of online trading capturing regions that were initially deemed too risky to invest in by mainstream financial markets experts.
Introduction of Intuitive Trading Systems
In the Forex markets, traders call them Expert advisers (EAs), whereas in the fund management market, they are referred to as Robo-advisers. These tools have made the online trading marketplace friendlier to beginner traders while at the same time attracting corporates who barely have the time to trade.
And now, by employing technologies such as machine learning, business analytics and big data, developers have managed to design even more intuitive trading platforms that are deemed to be better than expert traders. Some are calling them trading robots, while others prefer the term systems. Whichever school of thought you belong, it is obvious that these robots are demystifying trading in many ways, and this is opening doors for more traders including those who have no expert knowledge of the market.
This also means that whether you live in Africa or Latin America, you can easily invest in some of the world’s most vibrant stock markets including the LSE (London Stock Exchange), the NYSE (ICE) and NASDAQ (NDAQ) in the US, and China’s Shanghai Stock Exchange, among others. Traders do not necessarily need the expert knowledge of these markets, all they need to do is invest in a trading robot or system that tracks these markets and trades listed stocks in accordance with its set parameters.
These markets now have a global community of traders and the ability to trade online has made it even simpler to gain access.