Trying to answer the question “What is forex trading?” will take several days or sessions of discussing topics that are related to this market. For someone who doesn’t have much time to read or listen to very long lectures about forex trading, a short cut would be very advantageous. Thus, we intend to create this article for individuals who wish to instantly get a notion on the FX market. We will try to discuss forex trading through its types and participants.
5 Types of Forex Trading
1.Spot Forex trading
In the currency trading field, the spot market is actually the best market for someone who wishes for a quick transaction. With its term alone, spot forex trading is the process of buying and selling of currencies on- the-spot. This means that the client immediately or sometimes it takes 1 to 2 days before he gets the exchanged value of the on hand currency depending upon the ongoing exchange rate.
2.Futures Forex Trading
If you have been exposed to forwards market trading, then futures forex trading will not give you a hard time innterms of adjustment. This is because futures and forwards have similarities. Both of these financial instruments are contracts that concern an agreement to purchase and let go of your currency at a determined date in the future. Futures and forwards are also derived from underlying assets. But despite their similarities, one advantage of the futures market which forwards do not have is the fact that this instrument (futures) have characteristics that can solve the numerous problems that forwards can cause.
3. Options Forex Trading
Trading forex via options would require you to understand that such a market requires the usage of an ETF,security or index. Usage of such instruments needs to be done because an options market gives someone the privilege to buy or sell an instrument that underlies the previously enumerated instruments. The rate for the assets to be exchanged is determined over a definite time frame.
4. Swap Forex Trading
Such type of forex trading involves a derivative contract called swap. This instrument (swap) allows the two involved individuals to trade the cash flows or liabilities from two financial instruments.
3 Main Participants of FX Trading
The forex market involves several participants but here are three of the most involved group in every transaction
Whether that is central bank or commercial bank, these establishments play a great role in the forex trading field. They help facilitate international trade and make sure that exchange rates in their respective countries undergo fluctuations at a desired limit.
2. Traditional Users and traders
Traditional users are usually the individuals who exchange currencies for travel or business operations. Traders on the other hand are individuals who find ways to use currency exchange in order to gain profit.
These are groups of financial experts whose job is to go in between the dealers and the investors.These are called third party individuals whose expertise is provision of the best quotes for clients.
If we were to answer “What is Forex Trading?”With our notes right now, we can shortly say that it is a field having different types involving the use of various financial instruments and participants in order to fulfill a transaction.