The forex market for individual (retail) traders has gained overwhelming popularity following the development of online trading techniques in recent years. Millions of traders join this market every year trying to earn profits from currency trading, developing new strategies, and trading on long-term trends. But why is there a market for small retail traders? Is it just a way for brokers and some lucky traders to make money? Here is a list of the functions and roles played by the retail forex market:
- Earning Opportunity
This is perhaps the most obvious and important function of having a dedicated market for retail traders. The retail market provides a profit opportunity for traders, brokers, marketers, website owners, marketing companies and many other industries that carry out investment activities via the Internet. The absence of profit opportunities would have limited the retail forex market to the simple exchange of physical currencies or cash balances.
- Additional Liquidity
This is certainly one of the most important positive functions that the currency market performs. Although most individual traders in this market do not invest large sums of money in forex trading, the total funds they provide constitute a significant part of the liquidity available in the forex market.
- Additional upsides
To some people, this job may not sound positive at first glance. The participation of individual traders in the retail forex market makes the movements of exchange rates less smooth and more volatile given the preference of this type of traders for short-term deals, which in turn leads to sharp interactions with the issuance of daily news or the emergence of technical signals. Excess volatility may seem like a problem to long-term traders, but it is still a desirable tool for those who know how to profit from it.
- Social Function
Forex trading has given rise to many online communities which is attributed to the desire of traders to get help from their peers in return for sharing their own experiences with fellow forex traders.
- Developing Technical Strategies
The wild popularity of forex trading, especially automated versions of trading systems, has led to the creation of thousands of trading strategies. Most of these strategies are based on technical analysis, which has made it possible to apply them in other industries, not just forex trading.
Of course, this list cannot be considered exhaustive, but these functions constitute the main features of the retail forex market in modern times.
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