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If you are seasoned in the forex world, you will recognise that there is some major growth taking place and even more so expected in the future. To stay up to date you can check out an online foreign exchange platform to help you or you can continue reading.

When the foreign exchange was, well, a foreign concept, no one would have predicted the extent to which the market would have grown. This is a good thing. FX is practically available to anyone who is able to understand how it works, as well as those willing to learn, and if you have some spare cash you want to see grow over time, then this market is definitely for you.

Let’s look at the foreign exchange market and some growth it is going to experience in the next four years.  

Growth between 2022 – 2026

Can you believe that foreign exchange market growth is expected to sit at $1.94 trillion for the period 2022 – 2026? The compound annual growth rate (CAGR) is predicted to be around 8.87%. These are figures that those in the market are extremely happy about. Further predictions show that most of the growth will come from the North American market with a massive 46% of growth coming from the region alone. Furthermore, the US market is the biggest player in North America. If we look at the European and APAC regions, much slower growth is on the cards. However, further monitoring throughout this time period will offer some more insight. 

Business paper

Where are the drivers and the challenges?

A key driver in the continuous growth is the spike in urbanisation, as well as digitalisation. Now, why is that? The global foreign exchange market has seen a steady decline in manual operations and this is where we are seeing some key drivers. More and more automation is being implemented, specifically in workflows which leads to better productivity.

To improve client experiences and relationships, the implementation of digital tools to streamline processes and systems is seen as the key driver to the market’s exponential growth. Furthermore, market participants are developing and want to develop tools that will improve on data that in turn help investors to make better trading decisions, as well as reduce risks. What’s also great is that traders are able to gather and analyse data using artificial intelligence. This is ground-breaking since the benefits include the ability to analyse data that in turn leads to better trading decisions, but there are some challenges. 

The biggest challenge that puts a damper on growth is that the future of exchange rates is mainly uncertain. What does this mean? If a currency isn’t protected enough when it depreciates, this creates a risk that could potentially lead to a loss of money. Here is an example. You are selling goods that need to be shipped to a different country. Let’s say you and your buyer agreed that they would pay £525,935 for the shipment and the dollar is worth £0.85, collection will then be £425,000. However, let’s say the dollar decreased in value by £0.85 then the seller will be losing £5,000 since payment will then only be £420,000. It is important to note that it’s not all doom and gloom that the above scenario presents an opportunity in itself.

Generally, you will find that exchange rates between countries will reflect changes that were forecast in advance.  

Exchange rates

Trends for 2022

Let’s for one moment focus on currency pairs and what we will see for the rest of 2022. Across the globe, inflation has been on the rise and many predict the rest of 2022 will be the same. There are also a few currency pairs that will consistently dominate the market for the rest of the year, these include EUR/USD, USD/JPY, and GBP/USD. The top currencies in North America and Australia are USD/CAD and AUD/USD. Since these are merely predicted trends, you must note that major investment banks are the ones who agree on the strength of currencies. Furthermore, the dollar will remain strong in Europe, and this comes as no surprise. If we look at the UK, trends show that the pound will weaken but the region will be more competitive.