What is Forex Trading?
We already know that Forex is great, but did you know there is more than one way to actually get involved in Forex Trading?
In this post we will take a look at the most common Forex trading options that you will come across. In particular, we will focus on Forex Spot, Futures, Options and Exchange Traded Funds (otherwise known as ETFs).
The Spot Market
In the Spot Market, we trade currency immediately, or “on the spot”. Lots of traders love the Spot Market because it’s a simple set-up, there’s lots of liquidity (meaning trading orders are filled easier), and it operates Monday to Friday/ 24 hours!
It is very easy to take part in the Spot market and you do not need massive funds to get started. Some accounts can be opened for as little as $20 and some even give you no deposit bonuses for opening accounts. Not bad, eh?
On top of this, those providing the Spot Market (Brokers) very often include various useful tools and research within their offerings.
Ok so venturing out to the “not so simple”, we have the Futures. These are contracts where you agree to buy or sell an asset at a certain price on a certain date. Again, the clue is in the name – “Futures”. The CME (Chicago Mercantile Exchange) created Futures in the 1970’s, back when flares were still cool!
We trade Futures through a centralised exchange; the market is highly regulated and fairly transparent.
An “Option” can be described as a financial Instrument where the buyer has the right or the “option” to buy or sell an asset at a specified price on the options expiration date. (A-Haaa see what we did there? Again, the clue is in the name.) If you SELL an option, it is obligatory to buy or sell an asset at a specific price BEFORE its expiration date. Very much like Futures, we also trade Options on an exchange. Examples of such exchanges are the Chicago Board, the Options Exchange, the International Securities Exchange and the Philadelphia Stock Exchange. The downside to Options is that on some, the market hours aren’t so flexible and liquidity is far lower than what we see in the Futures and Spot Markets.
Exchange Traded Funds (ETF’s)
ETFs are the “noobies” of the world of Forex. An ETF could contain a combination of stocks and some currencies. (To the trader, this means having a much more diverse set of assets.) Created by Financial Institutions, we trade EFTs in very much the same way as stocks – through an exchange.
(AHA! I knew there would be another “The clue is in the name”). ETFs do have their limits, however. The market isn’t a 24-hour operation. On top of this they are subject to costs such as commissions and transaction costs.
So that’s it! Several options are available to you when it comes to trading Forex. Whether it’s Spot, Futures, Options or ETFs, there will be an option that suits you when choosing a suitable platform to trade.
The Spot Market is generally the most popular. It’s also potentially the best option when starting out as a trader. For those with time on their hands and lots of experience, it won’t hurt to experiment. But make sure you don’t experiment with money you can’t afford to lose!
In the next blog we will take a look at the advantages of Forex trading and show you why you should investigate the arena further to give it a go.
The post What is Forex Trading and How Can You Get Involved? appeared first on Jarratt Davis.