Forex trading attracts a lot of people, as a result, forex traders have created different ways of trading in forex.
Retail forex, spot FX, currency futures, currency options, currency exchange-traded funds (or ETFs), forex CFDs, and forex spread betting are the most popular financial products. These are ways on how retail or individual traders can trade forex. Forex swap and futures are not included because they are mostly for institutional traders.
Forex dealers that trade in lesser quantities are known as retails forex traders. These traders mostly use technical analysis-based trading strategies.
Spot forex is an over-the-counter or an off-exchange market. This particular sector works around the clock and is composed of big and liquid financial sectors. There is no central trading place or “exchange,” therefore it is not a market in the classic sense.
A customer should trade forex directly with a counterparty in an OTC market. Spot FX is an over-the-counter contract, unlike currency futures, ETFs, and (most) currency options, which are traded through controlled exchanges (private agreements between two parties).
Currency futures are ETFs that define the price in one currency at which another currency may be purchased or sold at a future date. Currency futures are bounded by a contract. The counterparty who is still under the contract must deliver the amount at a specific price on the delivery date that was agreed on the contract.
Currency futures are used to predict price changes and limit the risks of currency trading.
A currency option (also known as a forex option) is a contract that allows the buyer the right, but not the duty, to purchase or sell a certain currency at a predetermined exchange rate on or before a given date. A premium is paid to the seller for this right.
A currency exchange-traded fund (ETF) is a pooled investment that gives investors exposure to foreign exchange (forex) and currencies. They let investors profit from fluctuations in the exchange rates of one or more currency pairings.
CFD trading allows you to speculate on the movement of the underlying asset by placing leveraged transactions on currency pairings. CFDs are cash-settled, meaning they are paid (or delivered) based on the difference between the opening and closing values of two currencies, rather than a fixed amount of base currency.
Forex Spread Bet
Forex spread betting is a category of spread betting that includes betting on the movement of currency pairs’ prices. The spread is the difference between the bid and ask prices quoted by a firm that offers currency spread betting. Traders wager on whether the currency pair’s price will be lower than the bid or higher than the ask. The currency pair is more appealing when the spread is narrower since the transaction cost, or the cost of entering and leaving a trade is lower.