Traders in the Forex field know that the forex market is a place with no emotions. It can be merciless to both big or smaller traders. Dealing with the market includes dealing with anxiety, emotional and intellectual constraints. Yet, bigger companies still have advantages over the smaller ones as they can afford minor losses on the surface level compared to new companies. Smaller companies also find it challenging to establish a good relationship with banks. With that said, whether you are a small individual trader or market players, all are at high risk of losses.
How bigger traders have the upper hand in the market?
So, what sets the small FX traders and the more prominent market players apart? Nothing, other than the financial aspect. However, big traders also use human resources for trading and transaction; hence they can make mistakes out of greed, anxiety, and exhaustion. Although everyone in the forex market experiences emotional and psychological constraints, bigger traders suffer less than others.
According to Zed Founder and entrepreneur Alan Safahi, the financial strength and access to information sources are the two major weapons used in the FX market against newer traders. With these important advantages in their favor, bigger traders are more likely to succeed than the smaller competitors
Financial aspects – The people in the field, for example, the portfolio managers, are being paid monthly with a handsome commission. Therefore, winning or losing doesn’t affect their income. So, they are definitely not in emotional constricts, unlike smaller individual traders. Also, the traders that work in banks or any other financial institutions have nothing to fear about losses because the money they invest is not theirs’, so they invest a large sum of funding with greater ease.
Information sources – Believe it or not, most of these larger traders have access to insider information, leading them to take a safe yet proactive approach regarding the forex market. They know what they can expect from the trade position and how likely it will change direction. This results in almost accurate speculation on how the market should move, giving these traders mental satisfaction.
Global trading and latency
According to Alan, trading in the Forex market includes processing orders on a global scale. The market receives different currencies globally back and forth, which are then reassessed using the market data from major hubs like the U.S, London, Singapore, Australia, and other major markets.
As a result, the data collecting process can give birth to an inherent latency. Latency is a term used to define the delay between an order request and the order’s execution. For a greater chance of profitability, lower latency is required.
That’s because it can take a lot of time analyzing the market, communicating with the broker for order execution, and executing the order; further delay means slipping away from the transactional timing, resulting in price reduction.
These latencies can be present in internet connections, various exchange servers, brokerage servers, hardware, and software. The slower process results in increased latency, which alters not only the market decisions but also the global transaction value.
To further understand how latencies can affect the trades, I am quoting the CEO and co-founder of Singapore-based forex platform Spark System, Wong Joo Seng’s statement below.
“To send an order to buy or sell from Singapore to London or New York takes about 180 milliseconds. Then, you need to know whether the order was successfully done or not, and the time taken to receive a reply is another 180 milliseconds.”
“It becomes very difficult to transact,” he further added. “By the time you see a buying price here and try to execute that, parties in London and New York that are much closer and have a much quicker execution time would have the advantage, while everyone based here would be at a disadvantage.”
You see, even a latency of just 180 milliseconds can pose a threat to the traders. Hence, the concept of minimum latency is vital to gain a competitive advantage. Speaking of latency, do you know what other aspect gets affected by latency? The payment processing. Latency affects smaller traders because the transaction of money gets incredibly slower. This happens when traders are only limited to one payment method. Multiple payment methods thus help to solve this issue. If one payment route is laggy, you can try the other.
Why should smaller traders choose Payment Orchestration Platforms (POPs)?
Payment orchestration platforms, like ZED, offer multifold transaction routes for traders. They support wire transfers, direct bank deposits, credit card transactions, mobile wallet deposits, and much more. They also support cash pick-ups and delivery in multiple currencies. Not only that, POPs use intelligent transaction routing for higher FX rates and lower costs. By using a transaction fail-over process, they avoid lost revenue and reduce declined transactions.
The forex market has its own strengths and weaknesses. POPs are indeed a natural evolution of the market; however, they alone can not address all the concerns. To maximize the efficiency of the market and reach a level playing field, the market needs a plethora of information, awareness, and lesser latency.
With that said, we are hopeful that POPs will be a powerful tool to level the FX playing field so that no smaller traders in the forex market lose the competition and suffer.