The Technology Behind the Forex Market and Why It’s Important
Whenever we discuss the forex market, there’s always a focus on its size, liquidity and the volatility that underpins it.
There’s good reason for this too, with the global forex market worth an estimated $1.93 quadrillion and considered to be nearly 2.5-times larger than the world’s total GDP.
However, this lucrative market relies on a series of advanced and connective technologies, which enable investors to open and close multiple positions in real-time. Without these innovations, the market would not be able to function efficiently or achieve anything like its current level of value.
One of the most important factors is broadband cellular network technology, which helps to facilitate real-time trades in an age of online platforms such as Oanda. We’ll explore this in further detail below, whilst asking how the introduction of 5G connectivity will produce an impact on the forex market.
Online and Mobile Trading – A Brief Introduction
The forex market is the only entity of its type that’s accessible for 24 hours a day, with trading staggered across three separate sessions during this time.
This helps investors to trade major currency pairings effectively in different international time zones, whilst also accounting for the fact that the overwhelming majority of orders are now executed online.
In absence of a physical exchange, traders must process orders through a computer, which is in turn connected to the global marketplace through a series of networks.
Now, in order to trade effectively in different time zones and execute real-time orders that optimise profitability, investors must rely on a secure, reliable and rapid network that allows for instantaneous transactions.
The Different Generations of Network Technology
A growing number of traders are also investing through mobile apps such as the MetaTrader 4 and 5, and broadband cellular networks play a pivotal role in this.
These networks essentially serve as Wi-Fi-strength connections for mobile devices, and we’ve recently seen the fifth generation of this technology enter the mainstream (we’ll have a little more on this below).
The last iteration was 4G connectivity, which improved on the previous offering by improving download and upload speeds whilst also reducing latency.
As a result, it was considered to be significantly faster than 3G networks, whilst it also represented a huge leap from the ground-breaking the 2G technology that allowed digital phone calls and texts in early 1990s.
How will 5G Impact on the Forex Market?
Whilst this technology is being upgraded with increased regularity, it’s fair to say that 4G made only incremental improvements on the previous iteration.
However, the same cannot be said for 5G, which is primarily focused on the transfer of data and promises download speeds that are up to 20-times faster than what’s currently available.
The question that remains, of course, is whether MT4 and MT5 platforms actually require faster download or processing speeds in order to operate more efficiently? The short answer is arguably no, as regular traders will not require particularly high bandwidth to operate and can therefore satisfy themselves with 4G connectivity.
However, a 5G network may reduce the response time to ping servers, which in turn will enable traders to open and close positions a little quicker. This will be beneficial for high-frequency traders, who often operate within extremely tight timeframes and execute multiple orders simultaneously.
In total, 5G technology could reduce the ping time from 100ms to 10ms, and whilst this difference is indistinguishable by the human eye it could provide high-frequency traders with a competitive advantage.