The trade life cycle in forex trading is amazing. It can be as short as a few minutes, but it s remarkable that the entire process occurs in just this time frame. When considering your trades, consider how they will go from beginning to end. The forex market operates on an over-the-counter network and is supported by professional clearinghouses and brokerages. It s amazing how much activity occurs within a single exchange, and the trade life cycle is a great way to understand what happens during the trading process.
The trade life cycle begins when a client places an order to buy or sell. The broker must verify that the order is coming from a reliable source, and check the client s available funds. If the trader does not have sufficient funds, the order is rejected. If the client has enough money to make the trade, the broker can proceed to the next stage. Once the order has passed the risk assessment, the trade goes to the exchange.
The second phase of the trade life cycle involves the exchange of cash. The exchange of cash involves a number of complex processes. First, the broker informs the market of the trade that the investor is planning to make. The broker will then place a buy or sell order. The trader will pay a broker for the difference between the buy and sell price. Once the trade has been executed, the transaction moves on to the next stage, known as the "front office action."
A trade may have a settlement date, which is usually T+2. The settlement date is the day on which the transaction is officially finalized. The trading house informs both sides to make sure all of their obligations are met. A trade is assigned a number and letter. The most common type of trade is a T+2 T+2=T+2days.
When an investor wants to buy or sell a particular security, they submit a buy or sell order through a broker firm and a custodian, which is a bank. The buyer specifies the amount, or "buy" in forex trading terminology. The order is considered a buy order. The trading firm s front office selling traders will then send it to the middle office, which is staffed by risk management experts. From there, the sales traders will execute the order.
Once the trade has been made, the trade goes through the clearing house and the settlement process. This stage occurs about two days after the transaction date. The settlement date is the day when currency pairs are officially exchanged. Once the exchange matches the buy and sell order, the trading software notifies the broker and the bank, and the trade moves onto the second stage of the trade life cycle. A front office sales trader then passes the trade order to the internal risk management department, where they check the order and make sure that the order doesn t put the company or its users in financial jeopardy.