What is 'Online Currency Exchange '

The online currency exchange is an online system for exchanging one country's currency for another. There is no central exchange in the forex market because it is a network of computers that connect banks, brokers and traders together. Online currency exchanges are essentially forex brokers that allow for delivery of the currencies traded.

In other words, there is no single website or platform that anyone in the world can use to convert currency. Instead, there are several different types, depending on where in the world you are and what kind of currency you are working with.

BREAKING DOWN 'Online Currency Exchange '

Online currency exchanges will often provide the service of an online currency converter along with the option to actually convert the currencies for a nominal fee. This fee is similar to the spread quoted in pips.

Advantages of the online currency exchange

A couple of advantages of exchanging currencies online include being able to do it from the comfort of your home or office, and/or being able to lock in a preferred exchange rate at the time you see it, rather than having to run to the brick-and-mortar currency exchange and risk missing the rate because of market movements.

Disadvantages of the online currency exchange

While an obvious advantage of exchanging currencies online is the convenience it provides and the ability to do it anywhere, there are some things to consider about exchanging online. Because there isn’t a single, central venue for currency exchange online, you will have to choose a site or app that you trust to make the exchange.

Typically, most sites allow you to lock in the current rate while you make your purchase. This means that when you visit the site, calculate the currency rate, and decide to purchase it, the site “locks” in that rate for you, so you don’t get surprised at the end of your purchase by a completely different rate than what you started with. On the flip side, however, locking in a rate could be a disadvantage to you, as the currency rate could also change in your favor. Currency exchange rates can also change very quickly, sometimes by the second, so it can be hard to predict if the rate will change after you have locked in your purchase. Online currency exchanges also generally charge fees that can be difficult to distinguish, so you will want to be careful you don’t get overcharged for exchanging currency.

RELATED TERMS
  1. Currency

    Currency is a generally accepted form of money, including coins ...
  2. Currency History

    The historical values of a base currency in relation to the values ...
  3. Forex Option & Currency Trading ...

    A security that allows currency traders to realize gains without ...
  4. Forex Spot Rate

    The forex spot rate is the most commonly quoted forex rate in ...
  5. Exchange Rate

    An exchange rate is the price of a nation’s currency in terms ...
  6. Currency Convertibility

    Currency convertibility is the degree to which a country can ...
Related Articles
  1. Trading

    Forex market: Who trades currency and why

    The forex market has a lot of unique attributes that may come as a surprise for new traders. Learn more about who trades foreign currencies and why.
  2. Trading

    Top 5 Reasons To Invest In Currencies

    Here's why you should get into the forex market.
  3. Trading

    6 Top-Traded Currencies and Why They're So Popular

    Every currency has specific features that affect its underlying value and price movements in the forex market.
  4. Investing

    The Biggest Financial Market You've Never Heard Of

    Though many traders aren't familiar with it, the forex market is is actually bigger than the NYSE in many ways.
  5. Trading

    Why It's Important To Regulate Foreign Exchange

    In an increasingly globalized economy, the significance of the foreign exchange marketplace cannot be underestimated.
  6. Trading

    How Equities Affect The FX Market

    We look at how you can predict a currency movement by studying the stock market.
RELATED FAQS
  1. How do you make money trading money?

    Trading money, particularly in the forex market, is a speculative risk, as you are betting that the value of a currency will ... Read Answer >>
  2. What is foreign exchange?

    Foreign exchange is the conversion of a country's currency into another. In a free economy, a country's currency is valued ... Read Answer >>
  3. How is spread calculated when trading in the forex market?

    First, remember that in the forex markets investors trade one currency for another. Therefore, currencies are quoted in terms ... Read Answer >>
  4. Where is the central location of the forex market?

    There is no central location of the foreign exchange market, often referred to as the forex (FX) market. Transactions in ... Read Answer >>
Hot Definitions
  1. Bond

    A bond is a fixed income investment in which an investor loans money to an entity (corporate or governmental) that borrows ...
  2. Compound Annual Growth Rate - CAGR

    The Compound Annual Growth Rate (CAGR) is the mean annual growth rate of an investment over a specified period of time longer ...
  3. Net Present Value - NPV

    Net Present Value (NPV) is the difference between the present value of cash inflows and the present value of cash outflows ...
  4. Price-Earnings Ratio - P/E Ratio

    The Price-to-Earnings Ratio or P/E ratio is a ratio for valuing a company that measures its current share price relative ...
  5. Internal Rate of Return - IRR

    Internal Rate of Return (IRR) is a metric used in capital budgeting to estimate the profitability of potential investments.
  6. Limit Order

    An order placed with a brokerage to buy or sell a set number of shares at a specified price or better.
Trading Center