Different ways to trade Forex

forex trader

Because Forex is so amazing, traders have the opportunity to use several ways to speculate on currencies. Among these means, the most popular are spot Forex, futures, options or indexed funds (ETF gold).

The spot market

In the spot market, currencies are traded immediately or “spot” using the current market price. What is great about this market is its simplicity, liquidity, tight spreads and 24-hour trading. It is easy to participate in this market since opening an account only requires 25 USD (not what we suggest you do)! You will learn why in our lesson on Capitalization! In addition, most brokers offer free charts, economic news and finding aids.

The Future

Futures are contracts to buy or sell certain assets at a fixed price on a future date (that’s why they are called “Futures”!). Forex futures were created by the Chicago Mercantile Exchange (CME) in 1972, while elephant pants and leather boots were in vogue. Since futures contracts are standardized and traded through a centralized office, the market is very transparent and well regulated. This means that the price and transaction data are available at any time.

The Options

An “option” is a financial instrument giving the buyer the right or option, but not the obligation, to buy or sell an asset at a specified price when the option expires. If a trader has “sold” an option, then he or she should buy or sell an asset at a fixed price on the expiry date. Like futures, options are also traded on an exchange basis, such as the Chicago Board Options Exchange, the International Securities Exchange, or the Philadelphia Stock Exchange. However, the disadvantage of trading Forex options is the hourly market limits for some options and a lack of liquidity compared to the cash market.

The Indexed Funds

Indexed funds, or hedge funds or ETFs, are the youngest instruments in the world of Forex. An ETF can consist of a group of assets combined with currencies, allowing the trader to diversify through several equities. These instruments are designed by financial institutions and can be traded as shares through an exchange. Like Forex options, the limit on ETF trading lies in the hours of the market, which is not open 24 hours a day. In addition, since ETFs contain shares, they are subject to trading fees and other transaction costs.