Difference Between Spot Forex Trading and Currency Futures

Article Written By: fgcglobal

Forex is the largest market in the world in terms of the total cash value traded. Any person, company or country may participate in the market. Investors may engage in currency futures as well as trade in the spot forex market. The difference between these two investment options is minor as explained below.

The introduction of Forex futures occurred at the Chicago Mercantile Exchange in 1972. Forex futures also referred to as currency futures serve two primary purposes as financial instruments. First, they can be used by companies or individuals to remove the exchange rate risk inherent in international transactions. Second, they can be used by investors to speculate and profit from currency exchange rate fluctuations.

In the spot FX, the price is determined at the point of trade, and the physical exchange of the currency pair takes place right at the point of trade or within a short period of time thereafter (the standard settlement timeframe for foreign exchange spot trades is 2 days from the date of trade execution). Forex trading is not conducted on a regulated exchange.

It is referred to as an over-the-counter (OTC) transaction. For example, whenever someone goes to a bank to exchange currencies, that person is participating in over-the-counter (OTC) trade.

With currency futures, the price is determined when the contract is signed and the currency pair is exchanged on the delivery date, which is usually sometime in the distant future (typically no more than 3 months). However, most participants in the futures markets are speculators who opt to close out their positions before the settlement date.

Whether you decide to jump right in to spot FX or want to speculate a little, the Forex market offers countless opportunities with unlimited risk.

Contact a management and investment research firm who specializes in providing investors alternative market opportunities that diversify portfolio risk. Forex indicators help identify attractive investment opportunities in any economic environment.

Use forex strategies to design or reduce capital draw down that can occur in the extremely volatile market. Then you need to stick with it. The purpose of choosing a good strategy in the forex market is to make a profit and ignoring your approach to the trading could mean a big loss.

About the Author

Franklin Global Capital LLC, an online futures trading management and investment research firm provides proprietary forex indicators that help identify attractive investment opportunities.

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