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 On the Forex market you can find different financial instruments that can be traded. Most of them were created to lower the risk involved by the market volatility. The list of Forex financial instruments includes: spot, forward, future, swap, option and exchange-traded fund.
Spot A spot transaction represents a direct exchange between two currencies that involves cash and is the instrument with the shortest time frame. Except the trades between the US Dollar, Canadian Dollar, Turkish Lira and Russian Ruble, which are settled the next business day, spot transactions are settled in two days.
Forward The forward transaction is when a buyer and a seller make an agreement on an exchange rate for a date in the future, the actual transaction taking place at that time, at the arranged rate, no matter what happens on the market. The trade can be set to take place over one day, few days, few months or even few years. Future The future transactions are forward transactions with standard sizes and maturity dates. An example of Forex future transaction is $2,000 for next August at an agreed rate. Swap The swap consists in two forward transactions because the two parties agree to make an exchange between two currencies, and agree to exchange back the currencies at a later date. This is the most common type of forward transaction. Option A Forex option is a derivative where the owner has the right, but not the obligation, to exchange money denominated in one currency into another currency on a specified date and at a pre-agreed exchange rate. Exchange-traded fund Exchange- traded funds are investment funds that can be traded just like stocks, at any time throughout the course of the day. |
