For many years now, there has been talk of major forex trading platforms adopting blockchain technology. Last December, we saw some of the most significant examples of this talk turning into action, when HSBC and Wells Fargo adopted blockchain in order to settle bilateral FX trades. Specifically, the two banks began working with the Core-FX distributed ledger designed by Baton Systems in order to assist forex trades “using real currencies and real accounts.”
This is a fascinating account, and one many have waited a long time to see. But now that it appears as if blockchain tech in forex is indeed becoming a reality, what will the change actually mean for traders?
Precision & Accuracy
By nature, the blockchain is designed to facilitate precise and accurate transactions –– in some cases through straightforward buy and sell orders, and in others through the execution of smart contracts (which traders can use to put in orders, set limits, etc.). Furthermore, advancing blockchain technology is making the process even more accurate.
Notably for the world of financial training, the introduction of Chainlink has effectively brought about a sort of next-gen data validation process for the fulfillment of blockchain transactions. It is a new protocol that assists smart contracts with confirming that the data they’re working with is correct. The existence of such a protocol can in turn reassure traders that whatever contracts they set up and whatever orders they put in are executed exactly according to plan.
Expanding on the concept of blockchain contracts and their solidification via specific protocols, it’s worth noting that trading precision and accuracy aren’t just perks for forex traders. Rather, greater accuracy will specifically correct some of the errors forex traders have seen in the past. As we noted in our write-up on “10 Common Forex Trading Mistakes To Avoid”, inaccurate trading size is actually a common problem. To be clear, this is not to suggest that forex platforms necessarily make mistakes, rather than to point out that traders make errors by putting too much at stake.
But with blockchain tech, smart contracts, and accurate data validation all in place, it will be easier for traders to simply input orders based on clear strategies. They will be less susceptible to reckless or inaccurate decisions.
Not all blockchains are the same, and trade orders vary as well. However, there is at least strong potential for blockchain tech to bring about faster trades in forex scenarios. To offer one example, the aforementioned Baton Systems Core-FX technology is working to settle everyday forex transactions with real currencies in three minutes’ time. We wouldn’t quite declare at this point that blockchain transactions will be faster across the board than standard forex trading processes. But things may well be trending in that direction.
We don’t necessarily find that transparency is a persistent issue in ordinary forex trading. At the same time, it is certainly something traders will always appreciate more of, and that may well be what blockchain-based FX transactions bring about. Indeed, when the notion of blockchain transactions was analyzed by IG Group for Finance Feeds, it was stated that “the main benefit would be greater transparency.” The simple fact of the matter is that blockchain ledgers record any and all transactions in permanent and irreversible ways. So, for those forex traders who are concerned with transparency, blockchain offers a clear solution.
Altogether, the changes aren’t monumental. But as blockchain tech continues to ease into the forex world, these are some of the small benefits traders will enjoy.