People always find a new way to exploit any opportunity. So, it’s no wonder that traders will find more than just one way to get the best out of their favorite currency transaction platform, Forex. Becoming the easiest market to access and incredibly independent, Forex has already captured the attention of loads of investors. With eyes sharpen over years of experience, these investors have seen endless opportunities in the Forex marketplace. They, therefore, devise several ways to unearth a fortune in Forex.
Ways To Trade In Forex Industry
Numbers of strategies have been introduced to speculate or invest in currencies. Among all those, the most prevalent ones are spot FX, retail Forex, currency options, currency futures, currency ETFs, spread betting, and Forex CFDs.
This post will cover these trading paths through which a retail trader can conduct his business. Features like forwards and contracts trading will not get discussed here as they can only be exploited by institutional traders.
Let’s dive in.
Futures are more of deals on purchasing and selling specific assets at a predetermined price at a future time. That is the reason behind their name, “Futures.” Futures describe a definitive price chart for currencies at which they are available for sale and purchase. They also predefine a particular date for the transaction. Learn more about currency futures at Saxo bank UAE and enhance your skills to trade well.
Futures were designed for a centralized exchange market way back in 1972. Hence, they possess a standardized structure and happen to be highly transparent and well-operated. One can reach the transaction information and price whenever he wants.
A trader in Mena region can comprehend an economic tool that offers the buyer rightful flexibility in trading by an option. It never binds traders to make a transaction but presents some opportunities to vend or purchase an asset at a set price at a specified date.
Similar to the futures, options are also exchanged in a centralized market. The prime cons of the options are they feature limited trading hours, and the liquidity amount is trifling.
An ETF gives exposure to a basket of currencies or a single asset. It allows common investors to attain exposure to the foreign currency industry through an ordered fund without entitling themselves with the trouble of placing single trades.
Among many responsibilities of ETFs, speculating, diversifying a portfolio, or hedging in the context of currency risks are the vital ones. Traders create ETFs intending to transact currencies in a big or small fund.
Unlike other above-mentioned trading methods, the spot FX market is an around-the-clock and “off-exchange” market. The latter feature of the market is an ever-growing, large, and liquid financial platform. The former characteristic defines its activity hours. It doesn’t have a central governing body or location. Here, consumers trade directly against a counterparty.
With this process, the most extensive parts of total shares are conducted through an electric network. The main market of spot FX features an “interdealer” system. In this system, traders convey their trades via an intermediary. Interbank is a standard replacement term for “interdealer” as banks share the largest of all the FX dealers.
An interdealer platform is merely accessible to the institutions that manage large quantities and possess a massive net value. Banks, pension funds, insurance companies, large corporations, and several other giant economic institutions are some of the examples. In a Spot-FX system, an institutional investor is making transactions with a contract or agreement to ensure a currency’s delivery. These agreements are bilateral in nature, and they are to physically exchange a currency with another.
Though the method’s name has the word “spot” in it, it is not an on the spot platform. In reality, the actual transaction gets settled about two days after the trade-date.