The operational flexibility of the forex market, allows traders to come up with numerous ways and methods to speculate and invest in currencies.

However, of these, there are four widely recognized, popular, and proven methods. And we shall be discussing these four methods. They are;

• SPOT FOREX
• CURRENCY FUTURES
• CURRENCY OPTIONS
• CURRENCY EXCHANGE TRADED FUNDS (ETFs)

As a beginner, it is advisable that you master and make use of any one of the popular four methods before delving into others.

SPOT FOREX

The spot trading market makes it very easy for participants to engage in forex trading due to its low minimal financial demand. In the spot market, accounts can be opened with as little as $50 (18,000 – 20,000 naira: depending on exchange rate).

In the spot market, currencies are traded o the spot at the instance of the trader using immediate market prices.

For a newbie with basic trading knowledge, trading in this market will be quite easy as the market is known for its simplicity, liquidity, tight spreads, and round-the-clock operations.

CURRENCY FUTURES

The Chicago Mercantile Exchange introduced futures to the forex market in 1972 and has since been a widespread trading method.

This method enables participants to enter into contracts to buy or sell a certain asset at a specified price on a future date.

The price and transaction data related to future contracts can be easily accessed; therefore, they are considered to be strictly supervised and are known for their transparency.

CURRENCY OPTIONS

A currency option is a legally binding agreement that gives the buyer the option or right to sell or buy an asset on the expiration date of the option at a fixed price. However, the position of the seller or trader is quite different; 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.

The major difference here is that the buyer is not required to buy or sell on the expiration date but the trader is obliged to sell or buy an asset on the expiration date of the option at a fixed price only if an option is sold by the trade.

Forex Transactions in the currency options are sometimes not as easy as the spot of the future, due to the fact that the option is time-limited for some options (cannot be done at any desired time in a day). Furthermore, they are not quite as liquid as the aforementioned.

CURRENCY EXCHANGE TRADED FUNDS (ETFs)

The exchange-traded funds are quite new to the forex market. They are created and managed by financial institutions that buy and hold currencies in a fund. They then offer shares of the fund to the public on an exchange allowing you to buy and trade these shares just like stocks.

ETFs are however quite limiting, as they require some transaction costs, trading commissions and have specific opening and closing times.

We advise you to open a Demo account for the purpose of this phase of learning.

Click on this LINK to create a HotForex Demo or Live Trading account >>> OPEN ACCOUNT

The forex market is the biggest and most liquid financial market in the world. It is a multi-trillion-dollar market… yes you read that right! According to the Bank for International Settlements triennial report of 2016, the foreign exchange market cap averaged $5.1 trillion per day.

The forex market is considered an Over-the-Counter (OTC), or “interbank” market due to the fact that it doesn’t have a specific location or a central exchange and no strict rules or regulations.

Forex is traded electronically (majorly via the internet) all over the world within a network of banks which makes it accessible to a plethora of interested persons and organizations, who can trade with ease 24 hours a day, five and a half days a week.

This simply means that anyone with the requisite knowledge can trade on forex from any part of the world, as long as you have an internet connection.

The efficiency of the Forex market is unrivaled by other financial markets as its liquidity makes it easy for traders to buy and sell currencies without hassles or delay, and it enables huge trading volumes to happen with very little influence on price-fixing.

Forex traders including individuals and organizations decide on whom they want to trade with depending on trading conditions, the attractiveness of prices, and the reputation of the trading counterparty. However, the American dollar is the most traded currency, having 84.9% of all transactions.

The euro’s share is second at 39.1%, while that of the yen is third at 19.0%. The most traded currency pairs are the EUR/USD and USD/JPY, they account for approximately 41% of all forex trades annually.

The chart below shows seven of the most-traded currencies:

Below is a list of the top 10 most traded currencies:

1. S Dollar
2. Euro
3. Japanese Yen
4. British Pound
5. Australian Dollar
6. Swiss Franc
7. Canadian Dollar
8. Renminbi (Chinese Yuan)
9. Swedish Krona

The Forex Market And The Dollar

The US dollar remains a significant part of the forex market and the world at large, as almost every international transaction made is financed using the dollar. According to the International Monetary Fund (IMF), the U.S. dollar comprises roughly 64% of the world’s official foreign exchange reserves

The dollar more often makes up a part of all major currency pairs. The United States has the largest and most liquid financial markets in the world and her economy/currency is quite stable. Some of these factors contributed hugely to the popularity of the dollars among forex traders.

We advise you to open a Demo account for the purpose of this phase of learning.

Click on this LINK to create a HotForex Demo or Live Trading account >>> OPEN ACCOUNT

Forex trading involves the exchange of one currency for another, in other words, forex trade is the buying and selling of currencies simultaneously. When you trade in the forex market, you buy and sell in currency pairs.

For example, if you trade the euro and the US dollar (EUR/USD), that is a currency pair. Simply put, the two currencies you choose to trade on is referred to as currency pair. The first listed currency of a currency pair is called the base currency, and the second currency is called the quote currency.

Currency pairs compare the value of one currency to another the base currency (or the first one) versus the second, or the quote currency. It is usually indicated how much of the quote currency is needed to purchase one unit of the base currency.

There are several currency pairs in the world, as long as a currency is existing in the market, it is eligible to be paired, however, some currency pairs are referred to as major currency pairs.

MAJOR CURRENCY PAIRS

In Forex trade, some currencies are more often the subject of forex transactions than others. The major currency pairs are usually the most liquid and most frequently traded currency pairs all over the world. The major currency pairs all have the U.S dollars as a part of the pair (it could either be the base or quote currency.)

A currency is said to be liquid if it is reasonably stable, and you can buy or sell without so many changes or impacts on its rates.

The table below, shows the major currency pairs:

The fact that the above “major currencies pairs” are the most traded, doesn’t imply that other currency pairs cannot be profitably traded.

Other Currency pairs that don’t contain the U.S. dollar (USD) are known as cross-currency pairs or simply as the “crosses.”

OTHER TRADEABLE CURRENCIES (G10 CURRENCIES)

The G10 currencies comprise 10 of the most traded currencies in the world, they are also the 10 most liquid currencies.

EXOTIC CURRENCY PAIRS

A currency pair in the Forex market is regarded as an “exotic pair” when one of the major currencies is paired with the currency of a developing economy such as Brazil, South Africa Mexico, or Hungary.

Trading exotic pairs are usually more expensive than the major pairs, and they are not often traded.

The table below shows examples of major pairs, minor pairs, and exotic pairs:

We advise you to open a Demo account for the purpose of this phase of learning.

Click on this LINK to create a HotForex Demo or Live Trading account >>> OPEN ACCOUNT