Chapter 4: Types Of Trade in Forex

All right, so by now, your interest may have been piqued and you may have begun to wonder how you can go about getting started with

Forex trading. There are actually a few different ways in which you can speculate on currencies and make investments.

There are a few ways of trading Forex that are most popular and include:

Spot
Futures
Options
Exchange-traded funds, also known as ETFs

The Spot Market

No, the spot market isn’t referring to investments in Dalmatians. In this type of market, currencies are traded right ‘on the spot.’ In other words, they are traded immediately. The current market price is used for making spot trades. There are a number of advantages to this type of trade including the fact that it is simple, offers tight spreads, it’s highly liquid and you can take advantage of 24-hour operations.

This is one reason why this type of trade is so popular with beginners. You can literally open an account with just 25 bucks. You can also usually take advantage of complimentary research, news and charts offered by brokers.

Futures Trading

You’ve probably heard about futures trading in the news, but you might not have been sure what it entailed. Futures are really just contracts to purchase or sell a particular type of asset at a price that is pre-determined on a future date. Hint, hint. That’s why they’re known as futures.

Options Trading

An option is a type of financial instrument that provides buyers with the option or right to purchase or even sell a particular asset at a pre-determined price on a specified expiration date. As a buyer you can retain the option, but you are not obligated. If you happen to be a trader that sells an option, you are; however, obliged to sell or buy the asset at the pre-determined price on that expiration date.

Exchange-traded Funds

While many other trading types have been around for awhile in the Forex market, ETFs are relatively young. An ETF could potentially be comprised of sets of stocks combined with different currencies. The advantage of this is that it makes it possible for the trader to diversify their assets. ETFs are initially created by a financial institution and they can be traded in the same way as a stock through an exchange. The downside to trading ETFs is that they can’t be traded on a 24-hour basis.

Read also: Chapter 3: The Orders in Forex Trading

That covers the types of forex trades – now we are ready for chapter 5, how you can analyse the market. Click here to begin!

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