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Apr 23

Online Foreign Currency Trading

Getting involved in online foreign currency trading is not complicated.  There are a few things you need to learn, a couple of choices that you need to be make, but all in all, it’s not as difficult as it used to be.
The main choice you need to make is whether you want to get into currency futures trading or whether you would rather concentrate on FX-trading (ie. trading the Forex spot market).  Read on to learn what it takes to get involved.Let’s explain the differences between the two types of online foreign currency trading:

FX Trading

The biggest advantage of FX Trading is that it can be done with less money involved. The margin requirements, i.e. the amount of money you need to keep into your account to be able to trade with the leverage offered, is much lower.
The other advantage over currency futures trading is that the markets are open 24 hours a day, for slightly more than 5 days a week.

O.k. so is as far as advantages go.  What about the negative sides?  The FX Market as such does not really exist, as each and ever broker is your liquidity provider.  Your FX broker might have his own dealing desk, or he might be offering pass-trough-trading, in which case the market liquidity comes from external service providers like big banks or other such institutes.

Since there is no single ‘unified FX market’, there is no standardized contract you engage in when opening a position either.  Each FX Broker has his own business practices and terms.  It really pays off to read the fine print when dealing with FX Brokers…

Currency Futures Trading

Currency futures trading is an entirely different matter. Futures trading in general means that when opening a position, you engage in a standard contract that is valid for the entire market. It doesn’t matter what futures trading broker you use to trade these financials, the terms of the futures contract are the same everywhere. Unlike the FX Market, any futures market is a regulated one.
Since you’re trading a standard contract, there’s a standard volume involved as well, which most of the times is much more than those relatively tiny positions that can be opened on the FX Market. Since there is a bigger amount of underlying involved, the margin requirements are higher as well.

My advice: if your account is large enough for online foreign currency trading using currency futures as your investment vehicle, then forget about the Forex spot market.

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