A year is over, and another year to start with so many challenges for traders. While trading is evolving and changing over the course of the years, 2021 has been another challenging year for investments and financial markets. There are several important lessons to learn about online trading in 2021. The change is here, and traders have been navigating their paths and exploring new tactics and opportunities.
There’s no doubt that the financial world is different today than it was 3 or 4 years ago. The emerging new technologies and FinTech solutions redefined what investment is. The pandemic has complicated economic forecasting, and markets are experiencing unpredictable inflation rates. The cryptocurrency market is rapidly changing, and traders are witnessing new trends such as NFTs.
Trader Should Be Ahead of The Game
The first lesson to learn from online trading in 2021 is that traders should be ahead of the game. Overcoming the challenges is the number one skill for traders and investors. The market had significant challenges due to the uncertain situation of the Pandemic, the shifts in the global economy, the rise in inflation rates, the new technology trends, and the new rules in the game of trading.
Surviving in the market is not an easy task. Every day, an online trader looks at a screen, calculates the numbers, watches trends, and decides what to do. That’s the nature of this game. Therefore, online traders need to be progressive and fast-movers with their decisions. That’s the most important lesson to learn after a year full of events and major shifts in financial assets and instruments.
Trading is Getting More Popular: The Rise of Gen-Z in Trading
As a result of the global health crisis and its continuing variants have led to the growth of self-employment and flexible working practices around the world. There is no doubt that the technology has enabled Generation Z and young professionals (18-24) to pursue other sources of income, such as crypto trading, forex trading, and stock investments. The young generation is increasingly joining the investment world at a relatively younger age than it used to be.
The younger generation is looking forward to gaining financial freedom. Now, technology and trading apps allow anyone to start with only a minimal amount of money. In addition, apps are providing a huge shift in trading experience with easy-to-use platforms. The simplifications enabled the young generation to trade without the need for experience. Although there is a risk involved, everyone wants to learn more about the markets.
Advanced Technology: Trading Apps Are for Everyone
This year we witnessed the hype of Meme stocks, crypto trading, and investment apps with the rising numbers of individual investors. The entrepreneurs are stepping in and reshaping the financial world. We have seen how Robinhood has quickly shown us that everyone can trade now.
- Trading Apps: FinTech Startups, Banks and Brokerage services providers have been producing more advanced technology and easier access to investments. Eventually, the wide variety of apps and technology-enabled people to personalize their investment portfolio and choose financial instruments easily.
- Ease of use: People have the assumption that trading is very complicated, so they are afraid to get into the market. However, that is no longer the case anymore. The e-wallet and ease of deposit and withdrawal allowed everyone to manage their funds and invest with ease. FinTech and Brokers have continuously developed highly advanced apps and copy trade platforms to make the process easier and simpler for traders to start trading.
- Reliable Platforms: The cloud-based Forex trading platforms have gained popularity due to their lower costs, a wide variety of financial instruments (FX, stocks, indices and Cryptocurrencies), more flexible design, high reliability, and low latency, which are ideal for markets that are constantly changing in terms of regulation, products, and actual market conditions.
As technology continues to advance and develop further, the trading app will have even more features being added to it to help traders make more informed decisions. Indicators and their usage are easily accessible, along with more trading information. The lesson to learn from online trading in 2021 is that the trading app would no longer be just a trading tool. It must be an investment solution with advanced technology. In addition, it should also be a place to educate and provide analytical tools and insights in every trade decision.
Forex VS Crypto War in 2021: Who is the Winner?
Interest in various trading forms is constantly growing. Crypto trading has gained notable popularity, with more investors switching to the crypto market every day. The crypto market cap reached $3 trillion in November 2021, with an average daily trading volume of $124 billion. This rapid increase makes the crypto market the main rival to the forex market, which enjoys a daily trading volume of more than $6 trillion.
The diversity of cryptocurrencies entices traders to join the crypto market. Reportedly there are more than 14,000 cryptocurrencies available for trading.
Cryptocurrency Boom and Forex Challenges
Cryptocurrency prices and trade volumes are nowhere near those of forex trading. However, if there is going to be a market that can challenge forex trading, it will ultimately be cryptocurrency markets. The volume of cryptocurrency transactions currently stands in the tens of billions and is well behind the forex markets; however, it has increased significantly over the past few years and will probably continue on its upward trajectory. Despite the fact that it will take years for cryptocurrency markets to reach the same level, there is a possibility that in the future forex markets will be challenged by cryptocurrencies.
Yes, The Forex is still the KING
The forex market will always be here and yes it is still the leading investment destination ever existed. Even if there are no traditional currencies left around, there will still be some form of currency exchange for trading and investment purposes. It is never possible to have one single currency throughout the globe. Therefore, there will always be demand for currency exchange whatever the setting may be. Thus, the foreign exchange market will always exist, which means that there will always be an opportunity to trade currencies one way or another.
FX Market Dominates Worldwide Financial Investments
So, can the crypto market steal the light from the forex market? Yes, however, the forex market will always have its unique features. Meanwhile, trading cryptocurrencies is a riskier investment than forex trading, but it depends on what you’re trading and how you are trading it.
Despite the fierce competition from emerging investment destinations, the forex market kept its rank as the world’s largest financial market, with average daily trading volumes of $6.6 trillion. The global market cap of the foreign exchange market is $2.09 quadrillion. This is why there is so much liquidity in the forex market.
Cryptocurrencies: The Future of Investments?
Cryptocurrencies emerged as a leading investment destination in the past couple of years. However, the crypto market is still controversial even after a long way with regards to both technological advancement and increasing popularity.
The split among investors is still there. While some praise cryptocurrencies as the future money or the next internet. Others are skeptical and believe cryptocurrencies are fraud. We can see that for every person claiming that cryptocurrencies are investment bubbles, there’s another person insisting that they represent the next generation of finance.
But none of these actually stops the crypto market from further growing. The cryptocurrency market cap topped $3 trillion for the first time in November 2021. It is important to understand that analysis of the Cryptocurrency Market is not a straightforward process as the typical analysis used to evaluate financial markets or forex. Cryptocurrency trading is a largely speculative field and the effect of supply and demand is very unpredictable.
The crypto market is known to be highly volatile. However, the volatility is seen by many as an advantage. The Crypto market is less vulnerable to global events or financial markets such as traditional currencies. When the Covid-19 spread hit the world’s economy, the crypto market jumped to record highs.
Top Gaining Cryptocurrencies in 2021
- Dogecoin (DODGE) + 3,510%
- Ethereum Classic (ETC) +519%
- Ethereum (ETH) +441
- Bitcoin Gold (BTG) +410
- Ripple (XRP) +310
- Zcash (ZEC) +153%
- Neo (NEO) +84%
- Bitcoin (BTC) +67%
- Bitcoin Cash (BCH) +26%
- Litecoin (LTC) +24%
Maybe that makes it a more appealing investment destination for risk lovers. While traders who prefer high liquidity with favorable volatility will always choose the forex.
No Surprises: Top Traded Forex Currency Pairs in 2021
While the major pairs remain the most attractive and highest trading volume, the EURUSD has this year traded in the narrowest exchange rate on record. Investors and Forex traders have witnessed how the Central Banks slowed down the market. According to reports, the foreign currency market has been at a lower trading volume compared to the massive growth in the previous years. Eventually, the $6.6tn a day market is still one of the most attractive destinations for many online traders.
- EUR/USD: Euro vs. US dollar
- USD/JPY: US dollar vs. Japanese yen
- GBP/USD: British pound vs. US dollar
- USD/CHF: US dollar vs. Swiss franc
- USD/CAD: US dollar vs. Canadian dollar
- AUD/USD: Australian dollar vs. US dollar
- NZD/USD: New Zealand dollar vs. US dollar
- USD/CNY: US dollar vs. Chinese Yen
- EUR/GBP: Euro vs. British pound
The US dollar (USD) is the most traded currency in the forex market followed by the euro (EUR), the British pound (GBP), the Japanese yen (JPY), the Canadian dollar (CAD), the Australian dollar (AUD), the Swiss franc (CHF), and the Chinese Yuan (CNY). Together, they represent the top most traded currencies.
Trends of Major Currency Pairs in 2021
- EUR/USD: The pair started the year strong reaching new peaks. However, the rest of the year hasn’t been so good for the Euro with the Delta variant running rampage in the Eurozone with expansionary policy countering high inflation. EUR/USD has been on a strong downtrend since June and with omicron around the corner, hope for EUR recovered isn’t so high.
- GBP/USD: England has shown us that maybe Brexit wasn’t such a bad idea after all when the Pound has been faring quite well against the US Dollar through the year with only a downtrend appearing in the last 2 months. BoE was one of the first banks to raise interest rates paving the way for a stronger GBP next year.
- USD/JPY: The US Dollar had a wonderful time against the Japanese Yen as USD/JPY showed a strong uptrend throughout the year. Japan’s economy has been struggling with Covid restrictions and consequences. Meanwhile, the Dollar has been a clear winner as the Dollar Index shows steady upward movement in 2021.
In conclusion, while the major currency pairs had a slower year, they did remain the most attractive investment for traders. This lesson shows how trading forex on major pairs is still strong compared to other alternatives for day traders.
NFTs: A Different Crypto Approach
Non-fungible tokens, or NFTs, are the latest trend in the crypto community, taking the world’s digital collectibles by storm. NFTs captured the world’s attention as they came to reshape the future of digital work. But are NFTs worth all this hype? Similar to cryptocurrencies, some experts see NFTs as a bubble that will pop sooner or later. While others believe they are here to stay and change investing forever.
NFTs are digital assets that cryptographically represent the ownership of real items like art, music, collectibles, and even real estate. They are modern collectibles that can be bought and sold online like any property, mainly using cryptocurrencies, but with no tangible form of their own. NFTs exist on a blockchain, the database that underpins cryptocurrencies.
NFTs were created to identify things in a unique way and can be perfectly used on platforms of collectible items. Unlike cryptocurrencies, non-fungible tokens lack the interchangeability feature. Each token is unique and irreplaceable, no two NFT tokens are the same. NFTs are one-of-a-kind assets that represent digital proof of ownership securely recorded on a blockchain.
Central Banks Out of the Woods
This year witnessed the recovery of the global economy and financial markets from serious damages caused by the Covid-19 outbreak last year. Economies reopened, vaccination rates are accelerating and outlook has improved.
As the global economy gets back on track, currencies are betting on the central bank’s policy paths for the next year. Major central banks, led by the Fed, are heading towards reducing monetary stimulus.
Policy divergence had a significant impact on the movements of major currencies this year. The USD recorded consequent gains against rivals as the Fed is now expected to hike rates three times in 2022. Meanwhile, currencies like the EUR are still struggling as expansionary policies will be here for a while.
What is Market Talking about? The Two Buzzwords for the Forex Market in 2021
With stagflation being the new bubble, investors are looking for hedging assets to protect their capital. The US inflation climbed above 5% in 2021 (previously reached in 1990 and 2008), and we expect that inflation is here to stay. High inflation has certainly left its mark on the forex market with higher volatility for major currencies. The EUR, JPY, and GBP suffered significant declines while the USD rose to new highs.
Central banks around the world have finally decided to go for policy tightening with rising interest rates to counteract this problem, the exception is the ECB with a more dovish approach. We expect the Fed to speed up its tapering process and hike rates 3 times in 2022, followed by another 3 hikes more in 2023.
This year, the Delta variant has dealt a significant blow to the market as traders became more concerned about the economic recovery, which in turn directly impacted major currencies. We saw Europe being crippled with new Covid-19 cases and the EUR/GBP went under pressure. Furthermore, as vaccination rates increased and economic recovery is underway, a new thread of Omicron variant is looming. Investors will need to carefully judge the potential risks and keep an eye open for any market recovery.
The USD still Rules the Market: Top Gainers and Losers
Supported by Fed’s tightening and solid economic growth, the USD was a top performer in 2021 with extended gains against major counterparts. The US index is up by more than 6.7%. The USD increased by more than 10% against the Japanese Yen, 7% against the euro, 6% against the Australian dollar, 5% against the NZD, and 0.8% against the Canadian dollar.
The top loser this year is the Turkish Lira which lost more than 63% of its value against the US dollar.
Did Gold Lost its Shine?
Gold prices lost over 4.6% in 2021, while gold demand is nearly 9% lower in Q3. Doubling gold buying by central banks and the 50% growth in jewelry demand over the first three quarters, partially offset the decline in ETF demand, according to the World Gold Council. Gold demand declined by 7% between July and September, supply was also down by 3%. Gold demand remains notably weaker compared to the pre-pandemic levels.
Who are the most active in the game of Forex?
Some might think that the forex market is still dominated by the USA. Eventually, that’s not real anymore. According to reports, 19% of trade volume takes place in the USA. In meanwhile, London is considered as one of the major hubs for Forex trading.
Eventually, forex trading in 2021 has been expanding and spreading over the world. There are many other hotspots currently on the map besides the traditional ones. While Thailand has been highly considered as the main source for forex traders in Asia, India, Malaysia, and Vietnam are now highly considered as fast-growing in terms of forex traders.
In 2021 Africa and Latin America have been on the rise. The forex is expanding rapidly in these markets and South Africa is currently one of the most active markets.
If the Institutions Did Not Win, Then the Retailers Must be the Winners
Traders now are stronger and can change some rules in the game. Some people might even call it democratizing the market. It is widely seen in Stock markets and cryptocurrencies trading. The most obvious example is what happen this year in stock markets.
It began as just some random Reddit discussion on GameStop, and then it roared into momentum to squeeze the short position by Melvin Capital, a hedge fund. Retailers, mainly fans of the social media meme games, joined hands globally and moved the markets against the institutions, causing a whopping $19million losses in just this movement alone.
Long stories short, institutions received a lesson and a big slap from the traders this time around. Obviously, stock traders are becoming more and more fearless, as trading becomes increasingly common for anyone and everyone.
Sometimes, Hedge Funds Gamble and Lose Too
Would you maximize your leverage if your capital is around $10-15billion? That’s what Bill Hwang of Archegos Capital Management did. Because he had the image of an investor who is always right, the portfolio was being managed at approximately 1:5 leverage.
When Bill Hwang defaulted on loans, the lenders exited his portfolio. Such a move created an impact similar to a margin call of a forex trader. The fund’s positions had to be liquidated to losses of approximately $20billion in just two calendar days.
Leverage is where a trader makes a profit, but it can go the other way around if risk management is not practised properly.
MetaTrader 4 is Still the Most Favorite Trading Platform
The MT4 is still the most favorite trading platform even with the newer version of MT5 has been released for several years now. We believe that MT4 as a trading platform has survived for so long due to its flexibility and unlimited features that enable everyone to become a trader, advanced app, and easier trading process. There was never another app that anyone can confidently say surpass MT4 when it comes to trading FX.
Choose A Relaible Trading Platform
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AximTrade Group is a regulated financial services firm with several global awards and wide exposure in brokerage services across the international markets. AximTrade is dedicated to providing forex traders with educational resources including comprehensive learning materials, technical analysis, and competitive trading conditions in an environment with easy-to-use technology and the latest educational resources.