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Different Ways to Trade Forex

ishmaelDee

New Member
Because forex is so awesome, traders came up with a number of different ways to invest or
speculate in currencies. Among these, the most popular ones are forex spot, futures, options,
and exchange-traded funds (or ETFs).
Spot Market
In the spot market, currencies are traded immediately or "on the spot," using the current
market price. What's awesome about this market is its simplicity, liquidity, tight spreads, and
round-the-clock operations. It's very easy to participate in this market since accounts can be
opened with as little as a $25! (Not that we suggest you do. In the Capitalization lesson, you'll
learn why!) Aside from that, most brokers usually provide charts, news, and research for free.
Futures
Futures are contracts to buy or sell a certain asset at a specified price on a future date (That's
why they're called futures!). Forex futures were created by the Chicago Mercantile Exchange
(CME) way back in 1972, when bell bottoms and platform boots were still in style. Since
futures contracts are standardized and traded through a centralized exchange, the market is
very transparent and well-regulated. This means that price and transaction information are
readily available.
Options
An "option" is a financial instrument that gives the buyer the right or the option, but not the
obligation, to buy or sell an asset at a specified price on the option's expiration date. If a trader
"sold" an option, then he or she would be obliged to buy or sell an asset at a specific price at
the expiration date.
Just like futures, options are also traded on an exchange, such as the Chicago Board Options
Exchange, the International Securities Exchange, or the Philadelphia Stock Exchange.
However, the disadvantage in trading forex options is that market hours are limited for certain
options and the liquidity is not nearly as great as the futures or spot market.
Exchange-traded Funds
Exchange-traded funds or ETFs are the youngest members of the forex world.
An ETF could contain a set of stocks combined with some currencies, allowing the trader to
diversify with different assets. These are created by financial institutions and can be traded
like stocks through an exchange. Like forex options, the limitation in trading ETFs is that the
market isn't open 24 hours. Also, since ETFs contain stocks, these are subject to trading
commissions and other transaction costs.
 

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