iForexTrader

DIFFERENT WAYS TO TRADE FOREX

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The forex market has no centralized exchanges and all trades are over-the-counter deals, agreed upon by the relevant parties. The market is a vast global marketplace which is open for business 24/7, Monday to Friday. Daily trading starts in Wellington, New Zealand and is soon followed by Sydney, Tokyo, Hong Kong, Singapore, Frankfurt, Genev, Paris, London, New York, Chicago and Los Angeles -before restarting once again the following day.

Four ways to trade forex

In terms of trading, the forex market is divided into four main investment vehicles: the spot market, futures, options, and exchange-traded funds.

#1 The spot market

The spot market is a public financial market in which financial instruments are traded for instant delivery as opposed to a futures market where the delivery takes place at a later date. The spot market can be a security (financial instrument) or a commodity ( oil, gold, wheat) and is traded on an exchange by means of the current market price. In the over-the-counter-market (OTC) trades are based on a contract between two parties, without the exchange rules.

#2 Forex futures

Forex futures are exchange-traded contracts bought or sold in a given currency at a predetermined price on a set date in the future. All futures are written with a precise expiry date at which point delivery of the currency must transpire save an offsetting trade is made on the first position.

#3 Options

Similarly to futures, options are traded on an exchange. They are financial instruments that give the investor an option to buy or sell an asset or an instrument at a certain price on the option’s expiration date. If one were to buy the option then one must buy or sell it at a specific price at the expiration date. The drawback of options’ trading are market hours which are restricted for specific options and the liquidity is not nearly as boundless as the futures or spot market.

#4 Exchange traded funds (ETFs)

The exchange-traded funds (ETFs) make it easier to comprehend the forex market and utilize it to spread the risks. ETFs are a great way to profit from fluctuations in currencies without all the trouble of futures. An ETF could hold a set of stocks coupled with various currencies, permitting the investor to branch out with a diverse potpourri assets’. They are generated by several financial institutions, but as with forex options, the restriction in trading ETFs is that the market place isn’t open for business 24/7. What is more, since ETFs cover stocks, they might come with commissions and other costs.

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