One important thing to note in particular: with the exception of commercial and financial transactions, most of the trading volume in the market comes from speculation.
In other words, most trading volume comes from traders who buy and sell based on price changes.
Speculation is estimated to account for more than 90% of trading volume.
The size of the forex market is equal to liquidity – trading volumes are very high at any one time.
That makes it easy for anyone to buy and sell.
From an investor’s point of view, flow is very important because it determines price movements over a period of time.
A highly liquid environment like forex can allow a lot of trading but have little impact on prices.
While the foreign exchange market is relatively liquid, its depth will still vary according to currency pairs and time.
Because forex is so great, traders have come up with different ways to invest or speculate.
The most popular are spot, futures, options and exchange-traded funds (or ETFs).
Futures Futures are contracts to buy or sell an asset at a specified price at a future date (that’s why they’re called futures).
Back in 1972, the Chicago Mercantile Exchange (CME) was established, when bell-bottom pants and platform heeled boots were still in fashion.
Because futures contracts are standardized and traded through a central exchange, the market is very transparent and well regulated.
This means prices and trading information are readily available.
Option An option is a financial instrument that provides the buyer with the option, but not the liability.
To buy or sell an asset at a specified price at the expiration of an option contract.
However, if a trader “sells” an option contract, he or she is responsible for buying or selling the asset at a specified price when the contract expires.
Just LIKE futures, options are traded on exchanges such as the Chicago Board Options Exchange, the International Stock Exchange, or the Philadelphia Stock Exchange.
However, the disadvantage of trading is that some options have limited trading time and are not as liquid as futures or spot markets.
Exchange Traded Funds Exchange traded funds, or ETFs, are the youngest members of the foreign exchange market.
An ETFd can include some stocks and some currencies, allowing traders to diversify their investments across different assets.
Most of these funds are issued by large financial institutions and can also be traded on exchanges like stocks.
As with currency options, the restriction on trading ETFs is that the market does not operate 24 hours a day.
In addition, because ETFs include stocks, they require trading commissions and other trading fees.
Spot markets In spot markets, currencies are traded at current market prices through real-time trading or “spot trading.”
The best thing about this market is its simplicity, high liquidity, small spreads and 24-hour operation.
Participating in this market is easy as opening an account is only 25!
(We don’t recommend this.) You can find out why from the grant course!
In addition, most brokers usually offer free charts, news and research.
