Online foreign exchange trading is currently quite popular, and most of them are conducted in the form of margin trading . The most common method is for investors to open a trading account with a foreign exchange broker in advance, deposit an initial principal (also regarded as margin), and use the broker's online trading platform to trade foreign exchange with the default leverage multiple. Investors can freely trade at the spot exchange rate of the foreign exchange market, and settle profits and losses with the spread. Each transaction is calculated in the account on the spot.
Bank foreign currency trading is also a method of foreign exchange trading. Investors only need to open a foreign currency account at a bank. If you are optimistic that foreign currencies will appreciate or that domestic currencies will depreciate, investors can buy foreign currencies with domestic currencies through their accounts and wait for foreign currencies to appreciate to earn the exchange rate difference. This is a typical buy low and sell high strategy. In other words, if you hold foreign currencies and expect your domestic currency to appreciate, you can choose the right time to exchange them back to your domestic currency.
There are the following differences between foreign exchange trading platforms and bank foreign currency accounts:
Online foreign exchange transactions are mostly conducted on margin, and the buying and selling rules allow for long and short two-way operations. Investors can buy first and then sell, or sell first and then buy, based on the predicted direction. There are more trading opportunities than bank foreign currency accounts, and the buying and selling cycles are mostly shorter.
Online foreign exchange transactions are only operated in the form of contracts, and generally do not involve physical delivery, nor do they have settlement dates. On the contrary, foreign currency accounts are operated in the form of deposits, and investors can deposit and withdraw cash in the relevant foreign currency at the bank.
Due to more frequent transactions, online foreign exchange transactions generally have very low transaction costs, and investors only need to pay a very competitive bid-ask spread. However, bank foreign exchange transactions may involve some additional fees, and the bid-ask spread is large, and the cost is often higher than online foreign exchange transactions.
Online foreign exchange platforms are generally available for trading 24 hours a day, and investors have the opportunity to enter and exit the market at all times. In contrast, bank foreign exchange trading services are not complete or popular 24-hour trading services.
The margin trading method of online foreign exchange trading includes leverage operation. Investors only need to put in a small amount of funds to enlarge the scale of transactions. Common foreign exchange brokers offer a ratio of 1:100 or even higher. Bank foreign exchange trading does not have such an arrangement, which means that the initial cost is higher in disguise.
Simply put, the scope of foreign currency trading is more life-oriented, such as foreign currency account deposits, travel exchange, foreign currency needs for studying abroad, etc., but online foreign exchange transactions tend to be more aggressive investment behavior.
All financial products traded on margin carry a high degree of risk to your capital. They are not suited to all investors and you can lose more than your initial deposit. Please ensure that you fully understand the risks involved, and seek independent advice if necessary.