Different Ways to Trade Forex
Widely known as foreign exchange, Forex is one of the leading methods of trading currencies in financial markets. The market of Forex trading is by far the largest and it comes with an average volume of trading that even exceeds to $5 trillion. As Forex trading is so widely popular, traders usually use several new ways for trading and speculating in this market. Some of the different ways to trade Forex are listed below.
Financial Spread Betting
Unlike the conventional methods of investment, financial spread betting is actually a type of betting. It is not merely based on a particular event like that of fixed-odds betting. The bet can be closed in at any point of time while securing the profits and limiting the losses. In other words, it is more of a margined product based on derivatives that will let you bet on the movements of price of several kinds of financial products and markets. Some of them might include stocks, currencies, bonds or even indices. Like that of buying a share, an investor might get into a long or a short bet based on the ebb and flow of the current market.
Contracts For Difference (CFD)
This is a trading arrangement which is made in a futures contract where various settlements are made in lieu of cash payments instead of delivering any product or security physically. This is considered to be a relatively simple process of settlement because in this case, both the profits and the losses are likely to be paid via cash. The contract for difference trading offers investors the entire set of advantages and disadvantages associated with having complete control of a security, without really having it in possession.
Margined Foreign Exchange
This is a method of foreign exchange which is likely to increase your return on investment. Whenever a potential investor uses their margin account, they are actually borrowing for increasing the potential return on investment on their account. Usually, the investors use their margin accounts when they are willing to invest in the equities by using the complete leverage of their borrowed money for controlling a relatively bigger portion than they would have usually controlled with their invested capital. These accounts are usually operated by the broker of the investor and are settled in lieu of cash.
Spot Foreign Exchange
The rate of spot foreign exchange is usually the amount incurred for exchanging one particular currency in lieu of the other for an urgent delivery. The rates of exchange for spot typically stand for the prices that are meant to be paid by the buyers in one particular currency for purchasing another new currency. Although the exchange rate for spot is meant for getting the delivery done at the earliest date of value, the standard date of settlement for most of the spot based transactions is usually two business days right after the original date of transaction.
Currency futures can be defined as a transferable futures contract that particularly mentions the amount at which a currency can either be bought or sold in the long run. A currency future contract is legally authorized and the counter parties who still hold the contracts post the expiration date are required to trade the particular currency pair at a particular range of price on the mentioned date of delivery. The currency future contacts give the investors an opportunity to hedge against the impending risks of foreign exchange. As the contracts of currency futures are marked on a day to day basis, any investor can exit from the obligation of buying or selling the currency right before the delivery date of the contract.
Also known as exchange traded funds, currency ETFs refers to those funds that are invested in one particular currency or among several other currencies. These ETFs have a primary aim of replicating the movements in the currency with regard to the foreign exchange markets and they do this by holding the currencies either in a direct or via a currency-managed instrument for debts on shorter time periods.
An option can be defined as one of the most common derivative in terms of stock market trading. It is either a contract or the condition of a contract which will give one party the authority to conduct a specific transaction/trade with a different part, as per a set of pre-decided terms. In this regard, one should that although the option will give the right for conducting the transaction, it will not give any obligation with regard to this matter. An existing option can be used in several types of contracts. In the following section, you will get a detailed insight on Call & Put Options.
Options trade is primarily concerned with call and put options. Call options gives the concerned party the right of purchasing an underlying asset at a specific price (widely known as the strike price) for a specific time period. If the stocks do not meet the given strike price before the date of expiration, the option will expire and no longer happen to be useful. The investor will usually buy a call when they feel that price of the share of any underlying asset/security will happen to rise. Likewise, they are going to sell the call if they feel that it is going to fall. Getting an option sold is also known as writing an option.
Like the call option, the put option too will give the party the right to sell any underlying asset at a particular price (the strike price). Here, the trader selling the put option will be obligated to purchase the concerned stocks at the strike price itself. The put option can be used at any point of time before the option is going to expire. An investor purchases the put option if they feel that the share price of a specific stock is going to fall. At the same time, they sell their options if they think that the prices of share are likely to rise.