As mentioned in other pages of our index in most cases more experienced traders refer to the term online fx trading as an abbreviation for forex as a brief way to explain the practice of trading online. The abbreviation fx trading translates to foreign exchange and in most cases refers to currency trading solely as more experienced traders that use the term have a tendency to trade currencies and not other products offered on the trading platform.
Online fx trading as the further development can be categorized today is a decentralized over the counter market which allows private traders, institutions, businesses and government agencies to trade financial markets and currencies for business or speculative reasons and the volume of trades is what determines the values of different currencies day after day. As explained in the foreign exchange prices section the online fx market allows businesses and other bodies to convert currencies to foreign values for reasons of current or future trading. In each and every online fx trading transaction a trader which can belong to nay of the above mentioned categories will have to give up an x volume of currency A to receive a y volume of currency B.
How Does FX Trading Work?
In the FX trading market in difference to other commodity or bond markets since you are exchanging money for money and not money for a product its only realistic to understand that when you decide to purchase an x amount of a currency you will have to give up or exchange a y amount of a different currency which you currently have on hand in order for you to initiate a trade. In forex language buying a currency means going long in the currency bought and going short of the currency which you used to initiate the purchase. FX traders exchange currencies or initiate trades based on the rates given at the time of the trade execution for reasons that might have their roots based on speculation which can lead to a profit or simply for reasons of being enabled to have on hand an amount of a specific currency which they need to be in possession of to execute day to day business activities.
Characteristics of Online FX Trading
The unique characteristics which distinguish online fx trading are primarily based on its enormous trading volumes, its ability to have no geographical boundaries and its
ability to offer continous flow of operation from Sunday evening till Friday evening as explained under the forex trading hours section. In addition the online fx market is extremely appealing due to the extensive variety of products offered and the options to trade more than 70 worldwide currencies from any remote location provided a business, a entity or a private trader maintains an account with a forex broker that will offer him the service of a forex trading platform coming together with all the added features including customer service, banking options and the ability to enable forex managed account options.
The over the counter characteristics of the online fx trading market is the core reason that trades have extremely little cross border regulation as in difference to other online industries in online fx, trustworthy forex brokers are required to be licensed by an exchange commission which will guarantee the ability for the forex brokerage to handle the transferring of funds to worldwide locations through the worldwide payment messaging service which is based in Belgium and is abbreviated by the acronym SWIFT which stands for Society for Worldwide Interbank Financial Telecommunications.
The various instruments and the worldwide extension of forex trading platforms and forex trading systems allows multiple transactions for multiple currencies with a large pool of traders ready to trade through out the day as where it is daytime for one trader it might be nighttime for another, meaning that the forex market literally does not sleep. The primary trading center for the online fx market is London with New York, Tokyo, Hong Kong and Singapore being the secondary.
FX Trading Systems and Forex Determinants
The continuous fluctuations of exchange rates are caused by real monetary flow or by expectations of monetary flow due to changes across the worldwide financial or political scene or market psychology which can be widely influenced by the media and can result in changes of GDP, can increase or decrease inflation and therefore purchasing power of money and a series of other macroeconomic conditions which apply as a chained reaction to the spontaneous changes exchange rates present. Some of the determinants can be found below; these are part of the equation but not the equation as currency prices are affected by a long algorithm which literally cannot be calculated with precision.
These include: economic policy, disseminated by government agencies and central banks, economic conditions, generally revealed through economic reports, and other economic indicators.
Internal, regional, and international political conditions and events can have a profound effect on currency markets.
All exchange rates are susceptible to political instability and anticipations about the new ruling party when a new president a new party or a new monarch is on action. Political upheaval and instability can have a negative impact on a nation’s economy.
Market Psychology and trader perceptions influence the foreign exchange market in a variety of ways and these can be affected by numerous outside factors including the press, the media and whistle blowing tactics.