Different ways of trading foreign exchange

Because foreign exchange is great, traders have come up with many different investment methods or speculative currencies.

Among them, the most popular are spot foreign exchange, currency futures, currency options and currency exchange trading funds (or ETFs).

Futures are contracts that buy or sell certain assets at a specific price on a certain date in the future (which is why they are called futures!).

Forex futures were created in 1972 by the Chicago Mercantile Exchange (Chicago Mercantile Exchange), while the clock bottom and platform boots are still in style.

Since futures contracts are standardized and traded in centralized exchanges, the market is very transparent and well regulated. This means that price and transaction information is always available.

Currency Options

An “option” is a financial instrument that gives the buyer the right or option to buy or sell an asset at a specified price on the expiration date of the option, but is not obligated.

If the trader "sells" the option, he or she will be obliged to buy or sell the asset at a specific price on the due date.

Like futures, options are traded on exchanges such as the Chicago Mercantile Exchange (CME), the International Stock Exchange (ISE) or the Philadelphia Stock Exchange (PHLX).

However, the shortcoming of forex options trading is that certain options have limited market time and liquidity is not as large as the futures or spot market.

Currency ETF

Exchange-traded funds or ETFs are the youngest members of the forex world.

Currency ETFs provide exposure to a single currency or a basket of currencies. Below is a list of the most popular trading currency ETFs.

ETFs are created and managed by financial institutions that buy and hold money in funds. They then provide the public with a fund share on the exchange, allowing you to buy and trade these stocks like stocks.

As with currency options, the limit of trading currency ETFs is that the market is not open for 24 hours. In addition, ETFs are subject to trading commissions and other transaction costs.

Spot foreign exchange market

In the spot market, the currency trades immediately or “on the spot”, using the current market price. The market is awesome with its simplicity, liquidity, tight spreads and all-weather operations.

It is very easy to participate in this market, as the account can be opened for only $50! (Not that we recommend you do this) - You will learn the reason in our capitalization course!

In addition, most forex brokers usually provide charts, news and research for free.

At Pipsology College, we talk about the specific way of trading currencies, we will mainly talk about the spot foreign exchange market.