How to be a TRADER Part 2: How Can You Trade Forex?

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So… We already know now that Forex is Great, but did you know there is more than one way to actually trade it?

In this Blog we will take a look at the most common Trading options that you will come across. In particular, we will focus on Forex Spot, Futures, Options and Exchange Traded Funds (otherwise known as ETFs).

The Spot Market

Like the name suggests, in the Spot Market, currency is traded there and then, as in immediately, or “On the Spot”. Lots of traders love the Spot Market because it’s a simple set up, there’s lots of liquidity (meaning trading orders are filled easier), and it operates Monday to Friday/ 24 hours!

It is very easy to take part in the Spot market and you do not need massive funds to get started. Some accounts can be opened for as little as $20 and some even give you no deposit bonuses for opening accounts. Not bad eh?

On top of this those providing the Spot Market (Brokers) very often include various useful tools and research within their offerings.

Futures

Ok so venturing out to the “Not so Simple”, we have the Futures. These are in effect contracts where you agree to buy or sell an asset at a certain price on a certain date. Again, the clue is in the name – “Futures”. Futures have been there since the early 1970’s and were created by the CME (Chicago Mercantile Exchange). When futures started, Flares were still cool.

Being Traded through a centralised exchange, the future market is highly regulated and fairly transparent, meaning the benefit to you in price and transaction information being easy to get hold of.

Options

Ok, so an “Option” can be described as a Financial Instrument where the buyer has the right or the “Option” (A-Haaa see what we did there, again the clue is in the name) to buy or sell an asset at a specified price on the options expiration date. If you SELL an option, then you are obliged to buy or sell an asset at a specific price BEFORE its expiration date. Oh and very much like Futures, Options are also traded on an exchange. Examples of such exchanges are the Chicago Board, the Options Exchange, the International Securities Exchange and the Philadelphia Stock Exchange. The downside to Options is that on some, the market hours aren’t so flexible, and liquidity is far lower than what we see in the Futures and Spot Markets.

Exchange Traded Funds (ETF’s)

ETF’s are the noobies of the world of Forex. An ETF could contain a combination of stocks and some currencies, which to the trader means having a much more diverse set of assets. While being created by Financial Institutions and are very much traded the same way as stocks are, through an exchange. (AHA! I knew there would be another “The clue is in the name”). ETFs do have their limits, in that the market isn’t a 24-hour operation, and on top of this they are subject to cost, I.e. commissions and transactional costs.

 

So that’s it – Several options are available to you when it comes to trading Forex. Whether it’s spot, futures, options or ETF’s, ultimately there will be an option that suits you when choosing a suitable platform to trade.

The Spot Market is generally the most popular, and potentially the best option when starting out as a trader. For those with time on their hands and lots of experience it doesn’t hurt to experiment, but just make sure you don’t experiment with money you can’t afford to lose.

In the next blog we will take a look at the Advantages of Forex trading and show you why you should investigate the arena further to give it a go.

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