As a Forex trader, you should know your importance and how Forex Trading adds value to society.
Currency Traders may feel less compared to other occupations such as Doctors, Farmers, and Engineers. This is so because the act of buying and selling currencies to make profits seems like an activity that adds no value to society.
In this article, we will show how Forex Trading adds positive benefits to society. You will learn why traders are important in the society.
Ways Forex Trading Benefits the Society
Forex Trading is very important in society. It benefits the society in various ways. In this section, we will explain the various ways that Forex trading adds positive benefits to society.
1. Forex Traders Add Liquidity to the Market
A major way currency trading benefits society is by adding liquidity to the Forex Market. Liquidity is a very important benefit of Forex Trading. This is because it comes with various advantages. So, what is liquidity?
Liquidity of an asset is the ability to buy or sell that asset on demand, without making substantial change in the price of that asset. It can also be defined as how easy it is to convert an asset to cash.
These and other definitions show the importance of Liquidity. Now we’ll explain how the liquidity provided by forex traders or speculators adds value to society.
How Liquidity in the Forex Market Benefits Society
There are various ways Forex trading benefits society by providing liquidity, they include:
◉ Forex Trading keeps Prices of Currencies Stable and Cheap
The increase in Liquidity because of forex traders contributes to keeping prices of currencies stable and cheap. You can think of each speculator in the market as liquidity.
Following the common law of demand and supply, an increase in demand for a certain commodity will lead to an increase in its price if there is no increase in supply. We can use that to easily understand how forex traders benefit society.
With a huge number of speculators in the forex market, for any currency you wish to exchange, there is always someone ready to buy or sell to you. This means there will always be a supply of currencies in the forex market.
So, for each demand, there will be supply and for each supply, there will be demand.
Therefore, prices will remain stable and cheap.
◉ Forex Trading Makes the Exchange of Currencies Easier and Faster
As explained earlier, an increase in liquidity means more traders in the forex market. Due to the high liquidity in the forex market, there will always be someone taking the opposing position of a trade.
That is if you wish to change your dollar to yen maybe for vacation or business in Japan. There will always be a Forex trader ready to buy your dollar with Yen.
Whether because he expects the Yen to fall in value or because he wants to cash out on a trade. Hence, an increase in traders in society means an increase in the ease at which currencies can be exchanged.
These are some of the reasons why forex traders are important to society by increasing Liquidity. Now to the next benefit of Forex Trading…
2. Forex Trading helps Determine the Fair Value of a Currency
The Fair value of a currency is the price of the currency after all its fundamentals have been taken into consideration. It is the value based on the macroeconomic, geopolitical, and other external factors of the currency’s host country.
Forex traders carefully study all these factors. Forex traders watch out for currencies that are overvalued or undervalued based on all available information. They either sell the currency if its market price is higher than its fair value (overvalued). Or they buy if its market price is lower than its fair value.
By doing this, Forex traders contribute to the many factors that help determine the fair value of a currency.
Another way Forex Trading benefits society is by improving the economy of the society.
3. Traders Improve the Economy of Their Country of Residence
Successful forex traders will help boost the economy of the country they reside in.
Now just like other jobs, forex traders also pay taxes, they purchase goods and services produced in their country. They can choose to start other businesses and employ labor.
These are various ways forex traders can contribute to the economy. By engaging in these economic activities above, forex traders will bring economic growth to their country.
In third-world countries, successful forex traders can help boost the economy as they can serve as a supply of Forex.
4. Forex Trading Increases Economic Literacy
To be able to stay informed, Forex Traders follow major economic and political news. They can’t follow this news if they do not understand the basic contents of the news.
There are various economic releases watched by forex traders. Some of them include the Consumer Price Index, Interest Rates, Employment and Unemployment change, and many more.
To follow up with all these economic events, they have to gain a basic understanding of macroeconomics.
Hence, we can say that forex trading increases the number of economic literates in a society. Finally, to the last reason why forex traders are important in society.
5. Successful Forex Traders Can Become Philanthropists
Top successful forex traders have added value to society through their philanthropic work. The example we will use is none other than the legendary George Soros.
As one of the richest forex traders, George Soros donated more than $32 billion to his grant-making network. This donation accounted for about 64% of his total net worth. This made Forbes name him the “most generous giver” with regard to the percentage of net worth.
George Soros is a prime example of a forex trader who has added great value to society through his philanthropic work.
These are a few ways in which forex trading benefits society.
Some Arguments Against These Claims – Reasons Why Forex Traders Do Not Add Value to Society.
For each listed benefit of forex trading to society, there are arguments against it. We will summarize them below.
1. Forex is a Zero-Sum Game
Firstly, some may say that Forex Trading is a zero-sum game and hence adds no benefit to society. A zero-sum game is one where no wealth is created or destroyed. That is, when one person gains, another loses.
This is the case with the Forex Market. When trader A makes gains from the appreciation in value of a currency he bought, trader B loses from selling that currency to trader A. Hence, there is zero output—no addition to the society. The next reason why forex trading adds no benefit to society is:
2. The Liquidity Provided by Retail Forex Traders is Insignificant
When focusing mainly on retail traders, that is traders who trade with their own money and not for an institution. Basically, the causal forex trader with his computer and smartphone.
People may argue that they add no value to the society. This is because the liquidity they provide when compared to the global Forex Market is quite insignificant. The final reason why Forex Trading does not add value to society.
3. Most Retail Forex Traders Use Technical Analysis and Have no Knowledge of Macroeconomics
As we stated earlier, Forex trading increases the number of economic literates. But this is not always the case.
Most traders focus mainly on technical analysis. It is a form of analysis in forex with involves using price patterns, indicators, and other tools on the charts to predict the future value of currency pairs.
There are even communities of traders that believe the Forex News is just noise and Technical Analysis is enough to make any trader profitable. Hence, there are lots of traders who do not understand basic economic concepts.
Conclusion
Finally, we hope that after reading this article, Forex traders will hold their heads up high. They should understand their importance in society and try to contribute positively to their country or state.
References
Understanding Liquidity and How to Measure It – Investopedia
Liquidity – Corporate Finance Institute
Forex Fair Value Gap- What is it? | by Stephen King – Medium
George Soros – Wikipedia