The digital age has brought us many dramatic transformations in the way that we live and work, and we have access to worlds that were once highly exclusive. One industry that has undergone a tremendous change is forex trading. The internet has revolutionised the sector, opening up access to once closed-off trading rooms.
Today, you can trade the forex markets from your phone at almost any hour of the day or night, no matter if you are in London, Los Angeles or Lahore. This has led to the rise of individual traders – ordinary people who may not be financial professionals – who can now gain access to an instant funded account and make money through trading.
This type of speculative trading for profit by individuals is known as retail trading. Here’s the story of how we reached this new world of financial opportunity.
Forex trading before the internet
Before internet access became widely available in the mid 1990s, forex trading was largely inaccessible to the average person. In fact, apart from the odd exception of wealthy individuals with contacts in the financial industry, it was the exclusive domain of central banks, multinationals, major commercial banks, and large hedge funds.
If you weren’t a trader working on a bank’s forex desk, your ability to speculate on currency prices was almost zero. Minimum account sizes were often in the millions, and transactions were done over the phone, so retail participation was virtually non-existent.
Access to price data was tightly controlled, execution was manual, and spreads were wide. There was little transparency and even less flexibility, and it was virtually impossible for an outsider to access and navigate this opaque system.
Even for professional traders, forex trading was a slow and cumbersome process compared to today, when multiple trades can be carried out in a matter of seconds. The emergence of the free-floating global currency market in the 1970s, and the world’s first electronic stock exchange (Nasdaq) meant that speculative forex trading was profitable for the first time.
However, traders had to manually fill out buy and sell order forms, which they collected from pigeonholes in the trading pit. Placing a trade involved making several international phone calls across time zones, and took at least several hours if not days.
The rise of electronic communication networks (ECNs and trading platforms in the 1980s streamlined the whole process and paved the way for the deeper revolution that was to follow in the next decade.
The first ECNs were designed to serve institutional investors only, allowing them to see the best available bid and ask quotes, and automatically match and execute orders. The system helped to cut across geographical boundaries and time zones, and also cut out the middleman. This made trading much quicker and more profitable.
However, ECNs have costly access fees and commission charges that impact profitability and make them potentially prohibitive to individual traders. The early platforms weren’t user friendly, although this was the beginning of a new more democratic era for forex trading.
The internet retail trading revolution
By the late 1990s and early 2000s, the internet was opening up a brave new world. Forex was no longer just about the suits on the trading floor: digital technology began to democratise access to the financial markets.
Online brokers and prop firms with trading platforms emerged, making it possible for individual traders to open trading accounts, access live prices and execute trades in real time. It was no longer necessary to be an employee of a major financial institution or a city trader, and nor was it necessary to have multi-million dollar sums to trade.
With the need to be physically present on the trading floor removed, anyone with a digital device and an internet connection could now access the forex markets. The tools that provided real-time forex data were once expensive and largely inaccessible to outsiders, but today it’s possible to access them for free or a small subscription.
Retail traders can now use live charts, economic news feeds and streaming bid-ask spreads to make strategic and potentially profitable trades that were once restricted to the professionals. Transaction costs have also been dramatically reduced thanks to the speed of the internet, which has opened the doors to smaller lots and tighter spreads.
All this means that independent retail traders can execute trades at a level that is almost equivalent to large financial institutions. This has given rise to a largely self-taught global community of forex traders who take advantage of high liquidity and almost round the clock market access to build profits, either to supplement their income or as a full-time career.
The rise of prop firms
The internet has led to the rise of the prop trading firms that offer funded trading accounts, a facility that was previously only available to city bankers and hedge fund traders. Most prop firms set out clear risk management rules that are designed to protect both parties from making damaging losses.
The prop firms allow individual traders to open accounts with a low personal financial contribution or risk and high leverage, and to keep between 50 and 90 per cent of the profits they make. Traders who are able to demonstrate consistent profits are able to access capital of six figures or more, with the potential for highly lucrative trades.
The challenges of online trading
Although the internet has opened up once unimaginable possibilities for solo traders, inevitably there are also risks and challenges. Most forex brokers are transparent and accountable, but there are some scam operators who sell unrealistic expectations and do not practice good risk management.
The internet may have opened up forex trading to a wider range of people, but the markets are complex and fast moving and require strategy and discipline to navigate successfully. New traders need to be aware of false expectations that can be sold on social media, which portrays trading as a get-rich-quick scheme where millionaires are made overnight.
The reality is that trading requires strong commitment and emotional detachment as well as good technical and fundamental knowledge. These trading psychology skills can be learnt, but it takes time and patience, and the resilience to bounce back from mistakes and handle market turbulence without panic or fear.
How to get started from scratch
Learning trading theory is a necessary first step, but there comes a stage when you need to put this knowledge into practice.
If you think that you have the drive and determination to make profits by forex trading, you may want to sign up for our 14-day free trial. This will give you the chance to trade with virtual money in a simulated market environment, with the motivation of profit targets to hit. It provides a good balance between real-world pressure and a learning environment.
If you prove you’ve got what it takes, you’ll have the opportunity to move on to the evaluation stage and beyond to a fully funded account with a prop firm. Most retail traders aspire to this goal, because it allows them to trade with little personal financial risk. Alternatively, you can pay an upfront fee and start live trading straight away.
Your account size and profit share will increase over time if you can demonstrate that you’re able to operate within the firm’s risk management rules and make consistent profits. Thousands of ordinary people are already making a second income stream for themselves this way, or have even progressed to a new career, all thanks to the power of the internet.
The internet levelled the playing field
The internet gave individuals the tools to trade, but it also gave them the freedom to learn, experiment, and grow their skills at their own pace. It also brings together a diverse group of people who build trading communities to exchange information and ideas and support each other in their trading journey.
No one pretends that forex trading is easy: it takes research, discipline, and emotional regulation. But for those who are willing to put in the hard work, build their skills, and develop a good trading mindset, the rewards are potentially substantial.