Definition of online currency exchange


What is an online currency exchange?

An online currency exchange is an Internet-based platform that facilitates the exchange of currencies between countries or companies for delivery in a secure and centralized environment.

Key takeaways

  • An online currency exchange is an Internet-based platform that facilitates the exchange of currencies between countries or companies for delivery in a secure and centralized environment.
  • An online currency exchange provides immediate transparency, allowing the respective parties to control all aspects of the transaction, increasing efficiency, reducing costs, and improving security.
  • Forex brokers generally offer online currency exchange as part of their platforms.

Understanding an online currency exchange

An online currency exchange is, as the term implies, an online system for exchanging the currency of one country for another, either at the government (between countries) or corporate (business-to-business) level. It provides immediate transparency, allowing the respective parties to control all aspects of the transaction, increasing efficiency, reducing costs, and improving security.

Comprised of a network of computers connecting banks, brokers and merchants, the online currency exchange allows the conversion of currencies for delivery. Forex brokers generally offer online currency exchange as part of their platforms. The particular platform that processes the transaction will vary depending on the broker offering it, the location of the trader, and the currency pairs traded.

Forex brokers are companies that provide forex traders with access to a trading platform and a method for making currency exchanges online. Some brokers offer the service for free and others will require a payment, either as a portion of the margin or as a flat fee. Most brokers offer free use of a universal currency converter. Import and export companies, travelers, freelancers, and many others can determine the exact price of a product or service in any currency around the world using an online currency exchange. Generally, most sites allow you to lock in the current rate while you make your purchase.

Special Considerations

Online currency exchange is usually part of a broker’s trading platform. This platform is the investor or trader’s portal to the markets. As such, traders must ensure that the platform and any software have the following characteristics:

  • Easy to use and visually pleasing
  • A variety of fundamental and technical analysis tools
  • Trades can be entered and exited with ease
  • Clear buy and sell buttons as well as easy-to-read trade prices
  • Screen layout customization
  • Ability to establish automated operations and trade alerts
  • Flexibility to configure options and order entries

Most brokers will offer the use of a free demo account to allow traders to test the trading platform before opening and funding an account. In addition, since most brokers are usually remote from traders and investors, those interested in using such a system should research the providers, as the rates, availability, security and currencies that are available. administered can vary widely.

Limitations of online currency exchanges

You cannot change or convert the currency of all nations. Some countries have monetary policies that impose restrictions on the convertibility of their money. Currency convertibility is essential in a global economy and critical to international trade. A currency that is not convertible poses significant barriers to trade and tourism.

Some brokers may not handle currency trading for a contract for difference (CFD). During settlement in a CFD futures contract agreement, cash payments substitute for delivery of the asset.

Also, not all brokers can handle cryptocurrency exchange. A cryptocurrency is organic virtual or digital money that uses blockchain security or cryptography. A central bank does not regulate virtual currencies and trading for legal tender is not available for all virtual currencies.

www.investopedia.com

READ ALSO:  What is the difference between a Sharpe relationship and a Treynor relationship?
About the author

Mark Holland

Leave a comment: