The Different Ways to Trade Forex

Forex is a great platform which provides the traders with an opportunity to trade in numerous ways. The widely recognized ways are as follows:

  • Currency Exchange-Traded Funds
  • Currency Options
  • Currency Futures
  • Spot Forex

Currency Exchange-Traded Funds

ETF’s are relatively new to the forex market. Exposure can be gained to a basket of currencies or even a single currency through Currency Exchange-Traded Funds. There are numerous Currency Exchange-Traded Funds that are frequently traded. The financial institutions (FI) that acquire and hold currencies in a fund are responsible to create and manage currency exchange-traded funds. After this, the public is offered to acquire the funds’ shares on an exchange which can later be traded; this is similar to the process of acquiring stocks. A few of the limiting factors in the currency exchange-traded funds are that it requires some transaction costs, trading commissions and it has a specific opening and closing times.

Currency Options

With the currency option, the buyer gets the option or right to sell or buy an asset on the expiration date of the option at a fixed price, however, the buyer is not obligated to do so. It will be the trader’s obligation to sell or buy an asset on the expiration date of the option at a fixed price only if an option is sold by the trader. Similar to that of futures, the exchange such as PHLX (Philadelphia Stock Exchange), ISE (International Securities Exchange) or CME (Chicago Mercantile) are used to trade options. It should be noted that, unlike spot or future, the options are not quite as liquid and trading for some of the options cannot be done at any desired time in a day.

Currency Futures

The reason behind calling these contracts futures is that they allow for a specific asset to be sold or bought on a fixed price in future. In 1972, Chicago Merchantile Exchange introduced futures to the forex market. The price and transaction data related to future contracts can be easily accessed, therefore, they are considered to be strictly supervised and are known for their transparency.  

Spot Forex Market

As the name suggests, the current market price is used to trade the currencies on an immediate basis. This forex market is open 24 hours a day and is highly liquid and unambiguous. Furthermore, it offers tight spreads. You need as less $55 to sign up for the spot forex market and start trading. The reasons for this are extensively discussed in our Capitalization lesson.

  • BrokerEUR/USD
    City Index 0.5pips (fixed) margin: 3.33%
    IG 0.6pips (fixed) margin: 3.33%
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