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6 Different Ways of Forex Trading Currencies - Forex Function

6 Different Ways of Forex Trading Currencies

Last Update: 17 December,2016
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See How Easily You can Trade on Currencies (Forex) in 6 Different Ways

Trading currencies (forex) is awesome and has lots of benefits. In forex market, currency is always traded in a currency pair. A currency pair includes two currencies; one is the “base currency”, and another is the “quote currency” (counter currency), for example; in a euro/dollar currency pair, euro is the “base currency” and U.S. dollar is the “quote currency”. If the price for euro/dollar currency pair is 1.2345, then it provides us the information that the value of 1 euro is equal to 1.2345 U.S. dollars.

Forex market is a very huge market and provides various types of platforms to trade forex (Currencies). We can trade, speculate or invest in currencies through many methods.

6 Different Ways of Trading Currencies (Forex)

1. Spot Forex Market –

This is the most popular method of trading forex. As the name suggests, currencies are traded on the spot at the current available price. Simplicity is the key of this method. Currency pair is traded on the price movement i.e. whether it will go up or down in value. Trading spot forex market allows you to trade currencies without any inconvenience, costs and limitations associated with physical ownership. Trading in spot forex market has many advantages such as zero commissions, razor thin spreads, high liquidity and round the clock operations. Opening an account with a spot forex broker is really very simple and we can easily start trading with as low as $25 initial capital (it’s not that I am suggesting to start with such low capital). Many forex brokers provide lots of free stuff such as live forex charts, live forex news and research, free forex demo account and lots more.

2. Forex Futures Market –

Currency futures came into existence from 1972 by the Chicago Mercantile Exchange (CME). Futures market means that the traders trade in a fixed standardized exchange traded contract based on the buy and sell price spread provided by the exchange for any given currency at a predetermined price on a future date (that’s why it is known as futures market). Contract sizes and fees vary on the size of the contract and trading volume. The market is very transparent and well regulated. This means that price and transaction information are readily available.

3. Forex Options –

A forex option is an agreement that grants the right, but not the obligation, to buy or sell an underlying asset at a specified price on the expiration date or before the expiration date. If a trader “sold” an option, then he or she would be obliged to buy or sell an asset at a specific price at the expiration date. Forex options are traded on Chicago Board Options Exchange, The International Securities Exchange and The Philadelphia Stock Exchange. Speculators lock open positions at their desired price and enjoy full advantage of the price moments without setting up a stop loss for their open positions in spot or any other forex market, by paying a premium (the price we pay for the option itself). I personally advice to trade forex options, only after you have become successful in trading spot forex market as forex options contains a high level of risk and also the market hours are limited for certain options, and the liquidity of forex options is not so great as that of futures or spot markets.

4. Forex ETF’s –

The full form of ETF’s is Exchange Traded Fund. Forex ETF’s are mostly traded by investors who build a portfolio or want to invest from a medium term to long term. The first thing an ETF management firm does is that they buy and hold currencies in a fund. After creating a fund, they sell shares of that fund to investors. Any investor can buy and sell ETF shares just like buying and selling of stock shares. Currency ETF‘s are becoming a popular choice for investors to diversify. Investors can now easily manage systematic risk and take advantage of large trends around the world by investing money not only into the stock market, but also in the forex market through these funds. Forex ETF’s are regulated by the same rules that govern the stock market. Further, the fees for trading currency ETF’s would be the same as making a stock trade.

5. Forex Spread Betting –

Aren’t you a U.K. resident, Are You? If yes, Then you can enjoy your 100% trading profits without paying any capital gains tax. Yes, your profits are free from capital gains tax. Forex spread betting is similar like trading spot forex market. Currency pair is traded on the price movement as it is in the forex market and provides the same profit or loss as it is traded in the forex market. Forex spread betting allows you to trade the markets without any inconvenience, costs and limitations associated with physical ownership. Forex spread betting is free of commissions, service charges and taxes. The only transaction cost, which we pay, is the spread between the buy and sell price of the currency pair.

6. Forex Binary Options –

Trading in forex binary options is an exotic type of trading. Binary options are very simple to understand as they expire at all or nothing and can provide traders and investors a powerful mechanism for reducing risk. Forex binary options are basically a binary trade and are displayed as an index between 0 and 100. If our speculation is correct then the trade is settled at 100, and if our speculation goes wrong then the trade will finish at 0. There are many types of binary options available for trading. Trading forex binary options is free of commissions. The only transaction cost, which we pay, is the spread between the buy and sell price of the currency.  

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