Four Ways You Can Trade Forex
Four Ways You Can Trade Forex
The currency market is one of the most popular forms of investment. Many people who have tried their hands on trading currencies – either having a broker trade for them or trading on their own through a forex trading platform – all say that it is a good investment option that has the potential to bring in profits even with a modest capital.
Because of its popularity, when people talk of trading in forex, the first thing that always comes to mind is forex trading. But unbeknownst to many people there are also other ways forex is traded. Here are four of them:
Arguably the most popular way of trading in forex, the spot market is mainly involved with the current price or value of various currencies. The term “spot” refers to the present reflected value of a currency. The value of a currency changes so rapidly and so frequently so the spot would mean the value of the currency right at the particular moment. Even though the spot market is extremely volatile in terms of the way the value changes (there are times when values can change every few seconds!), it is also a market that is quite simple. It is also highly liquid and the spreads are quite tight, which are great advantages for a trader.
Another tremendous advantage of the spot market over the other forms of forex trading is that the market is open 24 hours a day, six days a week. The opportunity to earn profits can happen at any moment you want, especially if you see a good entry point.
The spot market is also quite easy to enter. You can begin trading currencies with a very minimal investment – as small as $25, in fact. You will have to be quite dedicated if you want to trade in the spot market yourself. This means learning how to read various technical tools and trading signals and determining how various news reports and indicators can affect the market.
The futures market concentrates more on the buy and selling of different currencies based on a particular price specified that is expected in the future. The forex future market was a development that was spearheaded by the Chicago Mercantile Exchange (CME) back in 1972. The contracts for futures trading are all standardized and all trading is done through a centralized exchange. This level of standardization and oversight means that that the forex futures market is very transparent and also one of the most well-regulated markets in the world. This is a seal of safety that will assure any trader or investor.
Options can be described as a financial instrument that will allow a buyer the chance to buy or sell a particular currency at an identified price when his option ends. For example, if a trader sold an option, this would mean that he is committed to either buy or sell the currency at a particular price when the expiration date for the option has lapsed.
The options market is another very regulated market. It does have a disadvantage though – there is only a limited number of hours for trading, especially for certain types of options. The liquidity of the options market is also not as good as the previously mentioned forex trading forms.
Exchange-traded funds are the newest form of forex trading to enter the market.
With exchange-traded funds (also called ETF), different assets like stocks are combined with currencies. This unique type of investment instrument allows a trader to further diversify his portfolio using different types of assets that are combined together. The ETFs are made and offered by financial institutions and are traded just like stocks. But just like the options market, ETFs are not traded 24 hours a day. More importantly, because stocks are involved in this kind of investment instrument, trading commissions and other costs are usually added.