How to trade in FX?
Forex market is now accessible to everyone who wants to start trading in it, unlike the old times when it was only open to governments, banks, and bigger institutions. Many brokerages, investment institutions allow individuals to open an account with them to trade in Forex.
While trading in Forex, currencies are traded in pairs which means a trader is going to own either of the currencies. When they are buying one, they are expecting it to rise and selling the one they believe is going to depreciate.
In electronic trading of currencies, there is no physical exchange of the currencies but an electronic one and a trader create a profit from the price differential of both the currencies they are trading in.
Currency trading is always done in pairs. When a trader is selling one, they are ought to buy another.
Spot Transactions
A spot transaction allows immediate settlement of the transaction. Generally, the settlement period is of two days in the Forex market. However, it can vary due to holidays. The exchange of funds between two parties occurs on the settlement date and not on the date of the transaction.
What is Forex Rollover?
When a trader is only interested in creating the profit and not in taking the delivery of the currency, they hold the position and do not require settling the transaction. They generally hold the position with a rollover and thus when a trade is closed and settled, the gain or loss from the rollover is added to the transaction.
However, day traders usually don’t hold a position overnight and close the trade before the end of the day.
What are Forex Forward Transactions?
Transactions that are settled on a date other than the spot transaction date are termed as Forex Forward transactions. Adjustment is carried out on the price of the currency paint and is known as forwarding points which reflect the differential of interest rates in both markets.
A Forex Forward transaction is a contract meant to be settled on any date other than a weekend or public holiday and can be created for any amount of money.
What are Forex Futures?
Forex Futures are contracts meant to be settled on a specified future date similar to a Forward Forex transaction with the exception that the date of settlement is non-negotiable. The date on which Forex Futures are obligated to be settled is known as the Expiry date. A set amount of currency is exchanged on the settlement date between both the parties and a trader creates a profit from the price differential in buying and selling the Forex Future contract. Traders make speculations on the price of the contract and generally do not hold the contract until expiry.