Before the spread of internet forex trading was not a feasible option available for common man. Trading in forex during those times was entirely the dominion of international financial institutions, banks, investment companies, and multinational dealers.
In simple words forex trading or foreign exchange trading means buying and selling of currencies of different nations for speculative purposes. It is termed as foreign “exchange” because in here a currency is bought by paying another currency. So in effect the whole transaction is nothing but mutual exchange of two currencies.
In forex continuously fluctuating prices of currencies determine the fate of a trade. This is the main reason behind forex trades becoming so popular among common people with the introduction of online trading facility. However, this popularity was not enough for its expected growth.
Forex is simple but big, and quite different from share market or funds market. In case of capital market commodities are plenty but the rate at which they are transacted is low, whereas, on the other hand forex markets a single commodity but the rate of transactions is highest. Its unmatched level of activity is attributed to its huge trade volumes. Every day currencies worth 2 trillion dollars are exchanged by way of forex trading. This figure is the minimum average sum of transactions undertaken per day. On busy trading days this amount surges up to 3 trillion dollars.
This huge volume is a sum effect of demand and supply of money throughout the world markets at national as well as international levels. All the other market transactions pass through forex market at some point of liquidation. Currencies flowing from capital market, gold market, import and export market, and other financial markets converge at one market spot called forex. As a result the randomness and frequency of transactions are always on a rise. Naturally, the price fluctuations are also too rapid and random. This makes the trade too risky as the stakes involved in the currencies bought or sold are comparatively high in forex markets. Thus close monitoring of price fluctuations is imperative to avoid losses.
When common people tried venturing into this field of trading, time constraints were the main inhibiting factor. It was lack of adequate time to watch the markets that mainly led to the development and growth of automated forex trading systems which eventually became a big hit.
Further, the online nature of forex trading also called for additional technical intervention by software developers and technology giants. However, the simplicity of forex market greatly favored automated trading as it has to deal with only one commodity. In general forex market has short trade durations. Short and medium term trading in foreign exchange is wound up within a day. Forex trading is generally used in the context of day trading or intraday trading, wherein all the positions entered in a day should be closed within 24 hours or before. This is another reason for increased demand of automated trading systems as day trading can quite easily be carried out through trading softwares.
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