Given the explosive growth of cryptocurrencies and token traders, it’s a good time to examine how the concept of trading has evolved throughout the years so we can better understand where it may go in the future.

20th Century Trading

The 20th Century saw enormous changes in the global concept of trading, as nations shifted from using currencies tied to a commodity to fiat currencies. It also saw the creation of a regulated method of investing in foreign exchange.

1. Fiat Currencies

Historically, governments used to mint coins out of rare metals such as silver, or would create paper bills that were tied to the value of a physical asset such as gold. The latter was the case in the US up until 1973. In that year, President Nixon took the country off of the gold standard, weening the dollar off its relationship with gold. At that point, the US dollar became a fiat currency.

What’s a fiat currency? The term fiat refers to currencies which have no intrinsic value. Instead, their value is determined by the governments backing them. Today, most currencies fall under this category.

2. Foreign Exchange (Forex) and the Futures Market

Fiat currencies of various countries can be traded through a Forex brokerage. Currencies are always traded in pairs: one currency for another.

The two primary strategies employed in the Forex market are: speculation and hedging. Speculators seek to profit by taking advantage of fluctuating exchange rates — buying low and selling high. Those who who employ hedging strategies seek to reduce the uncertainty and risk of fluctuating exchange rates by locking in contracts at a specific rate.

3. The Futures Market

The futures market, unlike Forex, is a derivative. The value of a derivative is tied to the value of an asset to which it is contracted to. Numerous types of assets such as securities and currencies can be contracted and traded as a future. As the name implies, futures are simply assets which are contracted to be sold in the future at a specified price.

Futures allow traders to purchase assets without having to worry about the price of the asset increasing in the future. They are often times the trade of choice for those preferring to employ hedge strategies in their financial investments.

Algorithmic/Quantitative Trading

The 21st century saw the widespread adoption of algorithmic/quantitative trading — a computerized, automated way of executing large volumes of trades. While the largest employers of quantitative trading strategies were originally large financial institutions, it has since become accessible to just about anyone with some savings.

There are many forms of quantitative trading strategies that individual investors can choose from depending on their financial preferences and goals. One such strategy is high-frequency trading or HFT. HFT utilizes powerful computers to process large amounts of financial data and make estimations off of this information. Based on these calculations, a huge number of trades will be made in a very short period of time.

All forms of quantitative trading rely on the use of big data to calculate trends and make predictions. Unlike a human being that can only effectively perform tasks one at a time, quantitative traders are capable of processing countless tasks simultaneously.

As the volume and value of these types of trades grew, so too did their impact on the economy. In response to this, governments began to create policies regulating HFT.

Token Trading

Cryptocurrencies and their corresponding tokens are unlike the aforementioned forms of trading in that their value is not tied to fiat currencies. Generally speaking, these currencies are not backed by any government and thus, their value is determined almost entirely by speculation.

Similarly, the lack of national backing means much less regulation. Currently, cryptoexchanges facilitate the purchasing and selling of tokens. Unlike banks which are regulated by governments and are often required to insure money deposited by customers, most cryptoexchanges offer no such safeguards.

What Trends Can We See From This?

The evolution of trading has shown several trends emerging.

1. Trades are increasingly being made based upon numbers and logic, rather than by gut feeling and emotion. 2. Advanced trading strategies are becoming more accessible to everyday investors. 3. Powerful computers and AI have made the process of trading faster and automated. 4. When the growth of new trading technologies start to massively influence the global economy, governments are forced to regulate them.

Based on these trends, it is highly unlikely for the number of quantitative traders, robo advisors, and other high tech trading solutions to decrease in the future — instead more and more will likely enter the market, seeking new clients to provide their services. As the market becomes more saturated with these investment advisors, a solution helping investors navigate the ocean of options becomes necessary.

We at Bincentive feel that we are that solution.

Our service will bridge all forms of investment options in a single, easy to use ecosystem. In the coming weeks, we will continue to release new articles explaining in further detail how we plan to help.

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