Blockchain is an advanced database system that is shared among many computer networks. It is currently used in cryptocurrency exchanges. In forex trading, blockchain technology can reduce the time traders require for settlement. It also increases the security arrangements of forex trading. This is because blockchain has enhanced cryptographic protection.
Forex, also called foreign exchange, is converting one country’s currency into another.Market forces determine the value of the two currencies. Trade volumes, investment, geopolitical conditions, and tourism are some of the common market forces affecting foreign exchange. Currently, banks handle foreign exchange transactions. The Bank for International Settlements (BIS) affects foreign exchange transactions. It also aims to ensure that the monetary policy is in sync with economic reality. The Forex industry is the largest global asset exchange market. It has an average daily trading volume of $6.6 trillion.
The forex industry is undoubtedly huge. However, it is currently facing many challenges. It is very important to first identify the common challenges and analyze how blockchain technology can overcome them.
Forex trading may need the involvement of many parties. This results in inflation. It often leads to high transaction charges.
Forex is the world’s largest exchange market. Despite this fact, the infrastructure of forex is substandard in many places. This is because processing a single transaction needs active cooperation from multiple parties. Many multiple instances of the same data need to be created across different databases.
The Forex market is prone to many types of risks. The most common risks include liquidity, leverage, and volatility. Sometimes, there are counterparty risks. New traders remain vulnerable to these risks. Unfortunately, the forex market offers less protection to them.
The existing Forex infrastructure in many countries is slow. Though it takes a few seconds to process a trade, yet it can take two full days for settlement. That is why brokers use Forex by allotting two extra days for settlement. Individual traders find it difficult to track all transactions. Reversals can also prolong transactions.
The banking and finance sector is rapidly adopting blockchain technology. This is because they want to cut down costs and reward customers. The implementation of blockchain technology can facilitate the transition to a decentralized platform in which large-scale transactions are carried out. This may help people to maximize profits. Since financial transactions in Forex need detailed information for scrutiny, blockchain technology can be very helpful in recording it.
The Singapore Exchange Limited offers financial trading services throughout Asia. Blockchain technology can lead to more efficiency in interbank payments.
Many banks still keep manual records of financial transactions. This needs batch processing which is quite time-consuming. Blockchain has the potential to solve these challenges because of its record-keeping efficiency.
Blockchain technology is highly beneficial for Forex trading. Platforms measure payouts on a daily basis. It will keep track of daily transactions. Moreover, retail traders will also be aware of their capital expenses.
Forex transactions are long and complicated. This is because it may involve dealings between people belonging to different countries. The people who deal in Forex trading do not know each other. In such a scenario, blockchain technology can be a boon. It can create an audit trail that records every transaction.
The smart contract feature of blockchain can save customers up to 90% of their time. It helps users to embed and retrieve vital information and legal documents. The smart contracts can revolutionize the ways in which individuals and firms deal in business. These do not contain legal language, agreements, and terms. These contracts are scripts that can help carry out specific actions between two transactions.
It must be noted that smart contracts do not contain legal languages or contractual agreements between two parties. These are scripts that can contain statements, module imports, and other kinds of programming. It helps in automating the specific actions in a contract.
Blockchain technology helps in timely transactions. This is crucial for Forex trading. Delays and barriers often hamper efficiency. Blockchain can systematically reduce both delays and barriers. There is no need for manual recording or paperwork because of blockchain. It can store tons of transaction details. The need to reconcile with several ledgers also does not arise. Forex without blockchain involves checking ledgers for settlement and clearing. Moreover, there is a high chance that this technology will minimize the transaction fees that central banks and brokers impose.
Foreign exchange markets often suffer from excessive regulations. It confuses clients because regulations vary from one country to another. This creates a significant amount of trust issues between agencies and clients. Blockchain technology can resolve this problem through decentralization. It will help in keeping transparent and accessible information, such that no amount of confusion arises.
Trade finance is a costly affair in most countries. Many initiatives concentrate on applying blockchain. It can minimize the costs of trade finance. Some prominent financial institutions such as Wells Fargo, Commonwealth Bank of Australia, and Brighann Cotton have undertaken initiatives to apply blockchain. This is to minimize the cost of trade finance and accelerate the speed of transactions. IBM is also developing a blockchain system to strengthen customer support systems. It is keen to reduce dispute resolution time for customers.
Forex trading suffers from security challenges. Blockchain technology can improve Forex security through cryptographic encryption. These encryptions are very hard to crack with the existing technologies. Therefore, it can almost eliminate the possibility of a cyber attack on the forex industry.
Blockchain technology can be a game changer for the forex industry. Many banks, fintech companies, and financial institutions are realizing the benefits of this technology. It can offer superior services and resolve many of the existing problems faced by the industry. Furthermore, many financial institutions are in a position to significantly improve their operations and become more competitive. Blockchain technology can minimize challenges like high transaction costs, security risks, detailed manual record maintenance, etc. These factors can improve the experience of most customers and new traders.