The Forex Trade is a Sleeping Giant of Blockchain Adoption

  • Johnny Collins, Contributor at Freelance

  • 08.06.2020 09:45 am
  • undisclosed , Johnny Collins worked for investment companies before deciding to leave the corporate space and become a freelancer. He now takes on financial/investment analysis projects, as well as writing opportunities that cover economy, business and tech.

As the world comes to understand blockchain technology better, we’re beginning to see it applied in more and more places. It’s affecting business-to-business transactions across borders, impacting commodity trades, and changing banking services. And just recently, we learned that blockchain is easing further into supply chains, which could impact innumerable industries worldwide. Alongside all of these uses for blockchain though, there is also a sleeping giant emerging in the form of the modern forex trade.

We refer to forex as a potential giant simply because of the colossal size of the trade. The forex market encompasses all the world's major currencies and exceeds $5 trillion in daily volume, with transactions occurring all around the globe and at all hours of the work week. There is simply no market equal to the forex trade in size, which means there are also few areas in which blockchain adoption could be more significant.

Right now, the majority of forex trading is still done by conventional means. Traders input decisions at online brokers, which carry out the deals as intended. Because the forex trade has incredibly high liquidity, trades are typically executed just as investors would like them to; there is so much currency being exchanged that there’s never a question of whether there are buyers and sellers available to facilitate a transaction. However, efficiency and fees can sometimes be problems. Additionally, institutions handling FX trades can sometimes have issues when using external technologies, handling transactions across borders, and so on.

These potential issues open the door for blockchain integration. The technology is designed in large part to address problems of this nature, and applied to forex trades it can in theory cut down on wait time, eliminate fees, and simplify processes for the institutions involved. And for these reasons, we are in fact seeing some FX-related companies turning to blockchain. Most significantly, HSBC has begun to lean on blockchain, and has handled millions of transactions through the technology. These transactions still make up a minority of the firm’s total FX activity, but are said to have “drastically” increased efficiency. The blockchain also gave HSBC a new ability to view trades “from execution to settlement,” essentially making it easier to spot any potential discrepancies that would need to be addressed.

There are additional examples of institutions like HSBC experimenting with blockchain use in forex transactions as well. And as they continue to see positive results, and as blockchain applications expand more generally (with the space expected to grow by 42.8% each year through 2022), further collaboration seems inevitable. In time, blockchain tech may well come to define the modern forex trade.

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