Forex has introduced several ways to trade currencies to traders. Different methods offer them to approach the platform from different angles. Each of them has specific limitations and scope, which makes traders choose the right one according to their trading style and psychology.
Understanding The Spot Market
The Spot-FX is a platform that is open to people 24 hours a day, allowing them to trade currencies regardless of the concern of time. It is a fast swelling and highly liquid platform. The whole transaction procedure is dealt with by a dealer who plays as an intermediary between the buyers and the sellers. In most cases, numerous banks play as the intermediary. Spot-FXs are the only ways an individual investor can easily make his way to the direct market. Depending on the scope and covering the market segments, several forms of the Spot-CFD or Spot-FX instruments can be observed by a trader.
Here are some of them.
1. Retail Forex
For its vastness and acceptance among the traders, the retail market is considered the secondary market, leveling the spot-FX market the primary one. This is the instrument retail investors deploy to enter the Forex industry. Different intermediaries who call themselves Forex-trading providers join the primary market and allow retail investors’ access to it. For instance, you can consider Saxo Forex broker as a great place to start the trading. They help you to get the best prices. Adding some extra markup to these prices, they display them on their proving platforms.
This process is indistinguishable from the process of buying products from the retailers who buy them from wholesalers. They add some extra charge and tag the new price on the product’s body as the retail price.
By rules, the spot-FX typically requires currency delivery in a maximum of two days. However, in reality, none follow the rule and takes those deliveries. The position gets rolled forward to the delivery date. Traders must remember that they are just exchanging contracts to surrender the backed currency instead of the real currency.
Such contracts are called leveraged contracts. This facility allows traders to manipulate the large scale of currency just with a little amount.
2. Forex Spread-Bet
Now, this betting system is quite derivative. It means that the speculators can’t own the asset but decide on the direction he ponders the most probable. So, the spread-bet is about speculating on the predicted imminent price movement of currencies.
The price of a currency pair deployed on such a spread-bet will be derived from its price on the spot-FX method. The profit will be counted depending on the market’s movement along the predicted direction and a trader’s decision to leave the trade. Those who provide spread-betting on the Forex market are known as the spread-betting providers.
In the US market, betting on spreads is illegal because of its similarity to gambling.
3. Forex CFDs
Contracts for different CFDs are financial derivatives. Derivative products trace the current price of an asset so that investors can trade on upcoming trends. This is a kind of contract between a trader and a CFD provider. In this contract, both the trader and the CFD provider come to an agreement to pay each other the difference in the security value between the entry and the exit point.
Simply put, CFDs are betting on a price’s movement of a specific pair with a CFD provider. The trader and the CFD provider make a deal that says the winning one will pay the other one the exact difference of the asset’s price between the gap of time in which the trade opens and closes.
With CFDs, an investor gets the opportunity to invest in a currency in every possible direction. The sole purpose of every type of spot-FX markets contract is to simplify the speculation system of different price movements of the currency pairs.