The Rise of Electronic Currency Trading

The Rise of Electronic Currency Trading

The forex markets have had a limited form of electronic trading since the mid-1980s. At that time, the primary medium for electronic trading relied on an advanced communication system developed by Reuters, known as Reuters Dealing. It was a closed network, a real-time chat system long before the Internet hit the scene. The Reuters system enabled banks to communicate with each other electronically to obtain quotes in what is called direct dealing.
This system works in tandem with a global network of brokerage firms that rely on telephone connections to currency trading desks and broadcast of current quotes, making them known as sound brokers.
The modern form of cryptocurrency trading first appeared in the forex market in the early to mid-1990s, eventually replacing much of the volume share of audio brokers. The two main versions of electronic matching systems were developed by Reuters and EBS for the institutional “interbank” forex market.
Both systems allow banks to enter bids and offers into the system and trade at eligible rates from other banks, based on pre-set credit limits. Systems will match buyers and sellers, and the prices traded in these systems become the standard parameters of currency rate data, such as highs and lows.
Developments in trading software has seen major international banks develop their own individual trading platforms. These platforms allowed banks and their institutional clients, such as corporations and hedge funds, to trade directly on live streaming rates fed through the banks’ trading platforms. These systems work in tandem with matching systems, which remain the primary sources of market liquidity.

At the same time, retail forex brokers have introduced online trading platforms designed for individual traders. Online currency trading allows for smaller trading volumes instead of the standard 1 million base currency units on the interbank market, such as 1 million US dollars or 1 million British pounds. The forex markets trade with such large notional amounts because the price fluctuations are made in small increments, usually known as pips, usually 0.0001.
When retail currency trading broke into the mainstream, most online currency platforms offered trading volumes in amounts commonly known as lots, with standard lot size equal to 100,000 base currency units and mini lots equal to 10,000 base currency units. However, with the development of the retail market, brokers began to act on demand in order to be able to place smaller trades.
Most brokers now have the option to trade micro 1000 lots, which requires much less capital than a mini or standard lot. This means that traders can enter the forex market with much less capital at risk.
In addition to multiple lot sizes, online brokers offer generally high levels of margin, ranging from 50:1 to 200:1 and sometimes higher, depending on the regulations of the country you are trading in. This allows individual traders to make larger trades based on the amount of margin on the deposit.
For example, with a leverage of 100:1, a margin deposit of $2,000 will enable an individual trader to control a large position of up to $200,000. Retail forex brokers offer leverage to allow individual traders to trade in larger amounts compared to the small size of pips.