Four Different Ways to Trade Forex | Forex trading basics

Topic of discussion: Forex trading methods

In this lesson, you will learn about four different ways of trading foreign currency or currencies. It is also the most common way to invest in the foreign exchange market. You will learn the general concept of Forex Spot, Forex Futures, Forex Options and Currency ETFs. So, let's leave the text without waiting.

You already know what foreign exchange trading is and how much liquidity it has. Therefore it is clear that most of us will be very excited to participate in Forex trading.

Therefore, it is worth noting that there are four different ways to invest in the foreign exchange market. These are:

Spot forex

Forward currency contract

Currency option

ETFs

Foreign exchange or local money market is the most common way of trading currencies. In the spot market, real-time or "instant" currencies are traded using direct market value.

The advantage of this market is simplicity, liquidity, narrow spread, high profit and 24/7 operations.

It is very easy to participate in this market where accounts can be opened for at least $ 50! (* Although it is not proposed to open with such a small quantity). In addition, most forex brokers usually provide charts, news and research for free.

The main disadvantage of this spot market is that it is not a well regulated market. Thus, the trader should be more cautious and cautious when choosing a foreign exchange broker.

In the ForexOrgine trading classes, we will mainly talk about the spot forex market.

Currency futures were first created in 1972 by the Chicago Mercantile Exchange (CME) after the United States decided to allow floating exchange rates for world currencies. It is similar to the spot market, but with some significant differences.

In future currency trading, traders buy and sell standard contracts with a predetermined expiration date.

For example, the standard contract size (standard lot) for EUR / USD is 100,000 USD. These standard contracts are set with maturity dates that are set quarterly.

The biggest difference between the spot market and the futures market is that everyone gets the same prices in the futures market. It does not matter whether the merchant is a domestic retailer or a merchant for a multinational bank; Price is same for all.

Another difference is that future brokers charge fees at exchange rates and clearing, while the spot market operates when supply / demand spreads.

Currency futures are settled through central exchanges, which eliminates counterparty risk.

Currency options or forex options trading

An "option" or "option contract" is a negotiable instrument (or financial instrument) that gives the buyer the right to buy or sell the property at a specified price on the expiration date of the option, but not the obligation. Specified.

On the other hand, if a trader "sells" an option, he will be obliged to buy or sell the asset at the specified price on the expiration date of the option.

Foreign currency options are also listed and centralized by exchange. But, unlike futures contracts, here in option contracts, the option buyer controls the risk factor for price movements.

The advantage is that, to buy an option contract, you only have to pay a premium amount and, if you confuse the deal, the maximum amount you can lose is the amount of premium paid.

However, the disadvantage of trading foreign exchange options is that market hours are limited to certain options and this liquidity is not as high as futures or spot markets.

One of the very popular options for currency options are binary options, which have gained popularity in recent times due to the strict use of mobile platforms.

ETFs are the newest members of the currency forex trading family.

ETFs are traded in the same way as equity ETFs. It is a financial instrument that carries the value of an asset and trades in relation to its underlying assets.

ETFs are offered by financial institutions that buy currencies and hold them in the fund. They then gie the cashier's shares to the public, which allows them to buy those shares and trade them as shares.

The rules of currency traded on the stock exchange are the same for stock trading. This type of fund is more popular with those who invest in the medium or long term.

Like currency options, ETFs have limitations that the market is not open all the time. ETFs also incur moderate commercial commissions and other transaction costs.