The Various Ways You Can Trade Forex

There are a number of different ways in which you can trade Forex. These methods of investing or speculating in currencies have been created by different traders. The most popular ways to trade are via Forex spot, Forex futures, Forex options and ETF’s which are Exchange-traded funds.

Spot Market

In the spot market, the currencies are traded “on the spot” or immediately – you might have guessed, really. One of the beauties of the spot market is that it is open 24 hours a day, so you can trade at any time that suits you. It also has tight spreads, high liquidity, and is very simple to understand. Furthermore, you can begin trading with as little as $25.00! We don’t actually suggest that you do that, as you will see in a later lesson. In addition, you will find free research, news and charts are offered by the majority of brokers.

Futures Market

Futures are quite simply contracts in which you agree to buy or sell an asset at some fixed date in the future. (See, there’s nothing complicated about this so far). The Chicago Mercantile Exchange created Forex Futures trading some 43 years ago, back in 1972. Futures are traded through a central exchange which means that transaction and price information is easily available, and the market is well regulated.

Forex Options

An option is simply something that gives you as a buyer a choice as to whether to buy or sell an asset at a specific price on the date that the option expires. You are not required to buy or sell it – you simply have the choice. If you “sold” an option, then you would be obliged to buy or sell the asset at a certain price on the date that the option expires. As with futures, options are also traded on an exchange, for instance – the Philadelphia Stock Exchange or the International Securities Exchange. However, one of the problems about trading options is that the liquidity is nowhere near as high as in the spot or futures markets, and in some cases the trading hours are limited.

ETF’s

ETF’s (Exchange-Traded Funds) can contain stocks combined with certain currencies. This allows a trader to diversify with assets that are different. ETF’s can simply be traded through an exchange, but as with options, the market hours are limited. Furthermore, there will be commissions and transaction costs because ETF’s contain stocks.