79. Internet/ Electronic trading (etrading) as a method of trading foreign exchange

The web-technology allowed retail foreign exchange trading to foster easy and fast ways for customers to access the markets and the currency pairs while making trades from their own computers. Retail foreign exchange trading is a small segment of the larger foreign exchange market where individuals speculate on the exchange rate between different currencies. This segment has developed with the advent of dedicated electronic trading platformsand the internet which have allowed individuals to access the global currency markets. In 2007 it had been speculated that volume from retail foreign exchange trading represents 5 percent of the whole foreign exchange market which amounts to $50–100 billion in daily trading turnover. Retail forex trading has been promoted by some as an easy way to make profits and has thus been the focus for a number of foreign exchange frauds. In response financial regulators in a number of countries have introduced restrictions or provided warnings about this type of trading as well as legal actions against perpetrators. However due to the decentralized nature of currency trading and the easy global access to the internet, a number of brokers are based in less restrictive jurisdiction and investors should take caution when doing business with companies in less regulated countries.

80. Internet/ Electronic trading (etrading) as a method of trading financial derivatives.

In finance, a derivative is a contract that derives its value from the performance of an underlying entity. This underlying entity can be an asset, index, or interest rate, and is often called the "underlying". Derivatives can be used for a number of purposes - including insuring against price movements (hedging), increasing exposure to price movements for speculation or getting access to otherwise hard to trade assets or markets.^[3]

Some of the more common derivatives include forwards, futures, options, swaps, and variations of these such as collateralized debt obligations,credit default swaps, and mortgage backed securities. Most derivatives are traded over-the-counter (off-exchange) or on an exchange such as theChicago Mercantile Exchange, while most insurance contracts have developed into a separate industry. Derivatives are one of the three main categories of financial instruments, the other two being equities (i.e. stocks or shares) and debt (i.e. bonds and mortgages).

A futures exchange or futures market is a central financial exchange where people can trade standardized futures contracts; that is, a contract to buy specific quantities of a commodity or financial instrument at a specified price with delivery set at a specified time in the future. These types of contracts fall into the category of derivatives. Such instruments are priced according to the movement of the underlying asset (stock, physical commodity, index, etc.). The aforementioned category is named "derivatives" because the value of these instruments are derived from another asset class.^[1]

The recent history of these exchanges (Aug 2006) finds the Chicago Mercantile Exchange trading more than 70% of its Futures contracts on its "Globex" trading platform and this trend is rising daily. It counts for over $45.5 billion of nominal trade (over 1 million contracts) every single day in "electronic trading" as opposed to open outcry trading of futures, options and derivatives.