The operational flexibility of the forex market, allows traders 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;
As a beginner, it is advisable that you master and make use of any one of the popular four methods before delving into others.
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.
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 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 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 is sometimes not as easy as the spot of 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 who 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.
ETF’s are however quite limiting, as they require some transaction costs, trading commissions and has specific opening and closing times.