This article looks at the different methods of trading in the forex live market.
You can utilise several methods to trade forex live. There are four common and popularly used methods that you should know about. These are the spot market, options, futures and exchange-traded funds.
The spot market is where all real-time transactions are done. It deals with forex transactions that are carried out immediately at the prevailing market value. The simplicity of the method is what appeals to most traders. Individuals and corporations that use trading platforms generally make use of this method of trading. The benefits that are linked to this method include the liquidity and tight spreads. The 24-hour trading period is a huge benefit in this market. It has made it possible for smaller traders to enter the foreign exchange market as the amount to enter the market is not as high as in other financial markets. You should be aware of the risks involved in using this method of trading. The rate fluctuations are experienced in real-time and this could be a negative for traders.
This is a financial tool that offers the purchaser the choice to sell or buy an asset. The option generally includes the price the purchaser is willing to sell for. The sale becomes valid on the specified expiration date and the purchaser is not forced to sell. In the event that the trader is prepared to sell the option, it becomes obligatory to buy or sell the currency asset at the price that was set, once the option reaches its expiration date. You should be aware that this method carries many disadvantages. It does not hold the high liquidity of the spot or futures market and the trading hours are limited.
Forex Live Futures
Futures can be described as forex contracts that will be finalised at some point in the future. The contracts set a specified price for the purchase or sale of currencies at a future date. The trading method was created during the 1970s by the Chicago Mercantile Exchange. It is a very well-regulated market. It is also a transparent market as the contracts have been standardised and trading is done through a central exchange. This ensures that the information and prices related to all transactions are easily and readily available.
Exchange Traded Funds or ETFs
This method is one of the newer methods in the foreign exchange trading world. ETFs make use of a range of stocks and currencies may be included. It is a perfect way in which to widen your portfolio to include different types of assets. The funds used for this particular method are arranged by economic institutions and then traded via the central exchange. One of the main disadvantages to using this method is that it has set trading times similar to options. The method contains stocks which means you will be responsible for paying transaction costs and commissions.
These are the main methods of trading currencies. The average forex live trader will normally make use of the spot market as that is where most of the daily transactions are undertaken. You should be aware of the benefits and pitfalls linked to the different methods and decide if it is in line with your trading plan.
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