A brief history of the rise of online foreign currency trading starts with electronic currency trading:
The forex markets have had a limited form of electronic trading since the mid 1980s.
At that time, the primary means of electronic trading relied on an advanced communication system developed by Reuters, know as Reuters dealing. It was a closed network, real time chat system well before the Internet ever hit the scene. The Reuters system enabled banks to contact each other electronically for price quotes in so called direct dealing.
The modern form of electronic currency trading debuted in the forex market in the early to mid 1990’s, eventually supplanting much of the voice brokers’ share of trading volume. The two main versions of electronic matching systems were developed by Reuters and EBS for the institutional “ This is just the beginning of online foreign currency trading.
The two main versions of electronic matching systems were developed by Reuters and EBS for the institutional “interbank” forex market. Both systems allowed banks to enter bid and offers into the system and trade on eligible prices from other banks, based on prescreened credit limits. The systems would match buyers and sellers and the prices dealt in these systems became the benchmarks for currency price data such as high and lows. The next milestone for online foreign currency trading is the development of trading platforms.
Trading platforms were advanced when trading softwares were developed. Major international banks started developing their own individualized trading platforms. These platforms allowed banks and their institutional clients, like corporation and hedge fund to trade directly on live streaming prices fed over the banks trading platforms. These systems function alongside the matching systems, which remain the primary sources at market liquidity.
At the same time, retail forex brokers introduced online trading platforms designed for individual traders. Online foreign currency trading allows for smaller trade sizes instead of the million base currency units that are standard in million. Forex markets trade in such large, notional amounts because the price fluctuations are in tiny increments, commonly known as pips, usually 0.0001.
Most online foreign currency trading do trading in sizes in amounts, known as lots, this is a standard size lot equal to 100,000 base currency units and mini-lots equal to 10,000 base currency units.
In general, online brokerages offer generally high levels of margin, ranging from 50:1 to 200:1 and some larger trades based on the amount of margin on deposit. For example at 1001 leverage a $2000 margin deposit would enable an individual trader to control a position as large as $200,000.
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