Forex Forward: Anticipating the Future of Trading in the UK

From regulatory changes, AI-based trading, to Brexit impact, there are several interesting changes coming up for forex traders in the UK.

Often called "the heart of forex trading", London has easily attracted worldwide traders due to its strong regulatory framework, a diverse range of participants, and high liquidity. With billions of dollars exchanged daily, it's a no-brainer that the UK remains one of the world's largest financial markets these days.

Trading in modern days has been made easier with the existence of technology. But even so, becoming a successful trader is still far from child play. Aside from analyzing price charts and recognizing pattern shapes, it is also crucial to have a good understanding of the various factors that may affect the market. This includes assessing economic situations, technological advancements, and more.

Here, we will look ahead and analyze trading in the UK and how it would evolve to help you trade better. Meaning, we'll see the trends that might shape the markets in the future based on several aspects such as technological advancements, regulatory changes, the trend of market participants, and the impact of economic events. Let's begin.

The FCA Regulatory Changes

One of the factors that will shape the future of forex trading in the UK is regulatory changes. In the UK, forex trading is completely legal and regulated by the Financial Conduct Authority (FCA). Not only protecting customers, the regulatory body is also responsible for promoting healthy competition between financial actors and maintaining the integrity of financial markets.

Over the years, the FCA has set strict standards and conducted various measures to keep the trading environment safe. Some changes that restructured the landscape of forex brokers' offerings in the UK were:

• Restriction on Leverage – Back in the days, forex traders are allowed to use high leverage to amplify their trading positions. However, the FCA now limits the amount of borrowed funds in order to protect traders from massive losses.
• Negative Balance Protection – Brokers are obligated to provide Negative Balance Protection to ensure that traders can't lose more money than they've deposited in their trading accounts. The goal is to prevent situations where the loss exceeds the trader's account balance and makes them suffer financially from the terrible damage.
• Warnings Against Unregulated Brokers – Lastly, the FCA has also been dealing with unregulated brokers by giving them warnings and even has taken enforcement actions against fraudulent companies. 

What about Changes in the Future?

Following UK's decision to leave EU, HM Treasury and the FCA now have more freedom in the design and operation of regulatory framework within the country. Therefore, the regulatory body is expected to redesign their regulations to be more adaptive in addressing existing threats and embracing global opportunities in the upcoming years. This doesn't necessarily mean stricter rules for brokers, but more about creating a transparent environment and enhanced security on less regulated products like crypto assets.

Aside from that, the regulatory body is also planning to deepen ties on financial innovation with other countries, while at the same time promoting the need to embrace technology without sacrificing traders' safety. By maintaining the high standards, the FCA hopes to maintain its leader status in the global trading regulation system. For FCA-regulated forex brokers, this means high credibility and reliability in the public eye.

Technological Advancements

New technologies have also contributed to the steady growth of the UK forex trading industry and are more likely to continue to do so. Here are some of the most impactful forex trends that might continue to thrive in the future.

Online Trading Platforms

Online trading platforms have transformed the way people make trades. In the past, trading was only accessible via large banks or financial institutions. But with user-friendly trading platforms, any retail trader can open accounts and start their trading journey from the comfort of their homes. It makes forex trading more inclusive, so it's not only dominated by large corporations but also passionate individuals.

Furthermore, mobile trading platforms are also very popular these days. Instead of getting stuck in front of the computer screen all day, traders can now bring their portfolios everywhere. Many apps are now equipped with many handy features like market news, economic calendar, price alerts, and more.

As mobile apps are getting more sophisticated over time, there is a broad industry consensus that the mobile trading trend will stay and even increase over time. This presents a huge opportunity for forex brokers to attract new clients from within and outside the country. More traders mean that the UK forex market size will raise to a higher number. This could lead to more liquidity and a much lower spread for forex traders.

Social Trading

Social trading is a system that allows traders to interact with other traders, share trading ideas, and even copy trades of experienced traders. It provides a unique opportunity for beginners to gain valuable insights from successful traders and improve their own performance. In the UK, many brokers have offered this feature on their platforms to build a community-driven environment where traders can connect and improve their skills.

In the future, social trading in the UK is expected to gain more traction, especially among beginner retail traders. This can create a stronger bond between traders, which can be valuable in such a seemingly solitary and competitive industry. Apart from that, the sharing of ideas and strategies can also lead to more diverse perspectives, further fueling the development of trading knowledge in the modern days.

The Use of Artificial Intelligence

Even though it is relatively new, the use of Artificial Intelligence (AI) has gained a lot of traction in the world of forex trading. Many UK traders are now using AI-powered bots to make trades and forex brokers are integrating AI into their platforms. These tools are capable of analyzing a bunch of data and predicting market movements in a short time. 

As AI technology continues to advance, we can expect further improvements in trading platforms. With the right use, it may enhance the accuracy of trading strategies and help UK traders gain profit faster. It offers a chance to revolutionize how forex trading is conducted to make it more user-friendly and efficient.

However, extreme usage of automated trading using AI bots might also be a problem as it increases market volatility over short time frames. This can somehow disrupt the dynamic of the forex market in the UK, making it more unpredictable than ever. High volatility also means high risk, whether you trade manually or use automated trading. 

The Increasing Number of UK Retail Traders

Previously, the market was dominated by large corporations and high-net individuals.  However, as forex trading is getting more accessible each day through online trading platforms, retail traders can now access the markets easily. In 2016, the number of retail traders in the UK is 124,000. Five years later, the number has doubled to more than 280,000 and expected to rise higher in the upcoming years. It is also worth noting that the UK has the most retail traders among European countries.

The diverse range of market participants can be a huge advantage to UK forex markets in general, making it more alive and attractive to potential investors. The increasing number of retail traders can be an excellent catalyst to promote more competitiveness among forex brokers, which can lead to technology advancements, new innovations, and enhanced trading tools.

Unfortunately, this can also potentially increase the risk of forex scammers. Since forex trading is getting more popular and accessible, more scammers will likely take advantage of newbies' passion to make easy money in the forex market. This is why trader protection measures are now more important than ever.

The Impact of Brexit

One of the most impactful political events that has directly impacted the UK markets in recent years is Brexit. The country's decision to leave the EU markets has caused a lot of uncertainty surrounding British pounds, making it incredibly volatile. As a response to that, UK forex traders must quickly adapt to the situation while at the same time monitoring the latest updates.

While forecasts from different institutions vary, most of them suggest a similar outlook for GBP in 2024. The sterling is predicted to weaken further through early 2024, possibly reaching 1.17 or so before finally reversing in the second half of the year.

Since the referendum, the market sentiment toward GBP has been quite negative. The uncertainty surrounding the pound also has triggered a sell-off in the past, causing UK traders to shift their focus to other currencies. This trend might continue affecting the UK forex market if the pound remains weak and unstable.

Another Brexit impact on the UK forex market is the change in trading strategies. Before Brexit, traders could rely on the stability of the US dollar and the British pound. But with the uncertainty surrounding the sterling, it is more likely that traders will adjust their strategies to anticipate the volatile value of the pound.

The Bottom Line

All in all, the future of the forex market trend in the UK looks promising and full of opportunities. The increasing number of retail traders, technological developments, and regulatory changes are more likely to shape the market. However, the uncertainty following the Brexit negotiation and security issues must also be closely monitored.

While the current trends seem to be heading in the right direction, there are also potential risks that should not be taken lightly. First of all, technological advancements might trigger new types of cybersecurity threats and higher numbers of hacking incidents. Fintech has also made money laundering easier to perform on online platforms.

As such, UK traders need to be more careful against online scams so they can prepare their strategy and choose the right instrument properly. In this fast-paced era, it's crucial to stay ahead and be well-informed of the forecast of forex trading evolution.