What is Online Trading?

Forex trading (also known as foreign exchange or FX trading), is the purchasing and selling of foreign currencies, with the objective of profiting from movements in currency prices.

Forex trades occur online, as the currencies are not physically traded. The trader and trading platform undertake to fulfil their obligations of buying or selling the amount specified. The contract ends by offsetting it against an opposite position, resulting in the profit and loss of the contractual parties.

The Forex Market has no physical location and no central exchange. It operates through an electronic network of banks, corporations and individuals trading one currency for another. This lack of a physical exchange enables the Forex Market to operate on a 24-hour basis, moving from one-time zone to the next.

In order to trade on the Forex Market, investors need to open an account with a broker and make a deposit. From there, the trader must monitor the market to buy a currency pair when they predict it will appreciate, and sell it when they predict it will depreciate.

Differentiating between investing and CFD trading

CFDs are financial derivatives that track the price of underlying assets, without traders taking physical delivery of the assets. This could include commodities, currencies, or securities like shares. CFD trading allows individuals to speculate on both rising and falling asset prices, known as going long or short. Profits or losses are determined by the difference between the opening and closing prices of a position. Short selling is a higher risk strategy, but risk management tools like stops can be used to limit potential losses.

On the other hand, investing involves buying and owning the underlying assets. The full investment amount is required upfront and going short is typically not possible. Profits are made if the asset price increases and the investment is sold at a higher price. However, investment is not without risk, as prices can go down, companies can go bankrupt, and the entire investment amount can be at risk. Dividend payments can also contribute to profits in stock investing.