“Overall there is a large potential for brokers which have their own systems and trading environment, as new products can be developed to attract customers who want to take advantage of the fluctuations in the markets and avoid the creaking economies.”
The geopolitical events that took place in 2022 and ensuing disruption to the traditional financial ecosystem has caused many people from all walks of life to begin reassessing how they should budget, as well as what to invest in.
Traditional investments which have often been considered very stable and good long-term safehavens such as property or physical commodities have been the subject of high levels of volatility due to fundamental changes to the structure of the financial markets in many Western countries.
“Many have lost what was left of their faith in the established economy”
For example, inflation in many Western European countries is now around 10%, whereas in some of the Baltics, it is approximately 25%, meaning that interest rate rises, of which there have been many during the course of 2022 are a very real concern to many people. As a result, property prices outside of the major European capital cities have decreased, and in the United Kingdom, mortgage lenders have withdrawn many mortgage products from the market, meaning people cannot buy homes using the usual line of credit.
Gold has been volatile, and crude oil rocketed in value from around $80 per barrel at the beginning of 2022 to over $125 per barrel in March before suddenly decreasing again and is now sitting at pre-war values.
Inflation across continents on both sides of the Atlantic has created a depreciating effect in the earnings of much of the working population, and many are weary of government decisions that hit the public in the pocket to the extent that recessions, high levels of inflation, cost of living crises and restrictions on the supply of important raw materials is a serious issue for sustainability.
In short, many have lost what was left of their faith in the established economy and will be looking toward other areas of investment.
FX to gain ground among Retail investors
The FX markets have become volatile once again, especially among majors. The British Pound’s spectacular decline which took several weeks against a strong US Dollar was a case in point, but suddenly it rose again as inflation in the US decreased from 10% to 7.5% and created an increased cost for large US corporations when doing business in Europe where inflation remained at over 10%.
Many FX brokers have based their entire business model on low volatility, and this recent period has been a test of flexibility and strength for many. However, volatility is the lifeblood of the global trading markets, so it could be that in 2023, many retail investors will look away from traditional long-term physical investments and toward liquid, immediate investments such as FX, especially with such volatility and endless political events creating differences between regional economies.
More innovation in cross-border payments and crypto trading
Going one step further, cryptocurrencies may well come into their own this year. A genuine case for decentralization has been made by the overall broken dynamics of the centralized financial economies to the extent that fully transparent, peer-to-peer ecosystems based on a secure public blockchain with no interference from governments or central authorities may appeal to investors and brokers alike, on both the buy and sell side of trading.
We may well see more innovative financial products aimed at the retail market, such as debit cards associated with trading accounts that do not have a base currency, making it easier to make transactions across borders without the volatility of the major currencies being a factor and in which the holder of such a card can simply choose to pay in the currency in which a product is offered without a currency conversion taking place.
“Large potential for brokers which have their own systems”
Greater liquidity will be required, so it is possible that some degree of consolidation between FX brokers may take place, and even collaboration between smaller firms needing to rely on their larger rivals, such as the one between LCG and IG Group which has taken place. That is highly unusual, but indicative of the times we are now in.
Overall there is a large potential for brokers which have their own systems and trading environment, as new products can be developed to attract customers who want to take advantage of the fluctuations in the markets and avoid the creaking economies.
Those who are in a position to develop and innovate may be able to build a new economy and genuine alternative to the inflation encumbered and flagging analog economy, whilst those reliant on third party platforms may end up consolidating.