With forex trading more popular than ever, you’ve probably heard a lot about it. What you might not know is that there are actually quite a few ways of trading it. Yes, you can simply buy and sell the asset itself, but there are other ways of making money from the price movements, some of which might be more suitable for you than others.

It’s important to know the options that you’ve got when you trade fx, so that you can maximize your chances of making a good profit.

Below are the main products that you’re likely to find offered by your broker. You may find that there are variations of the following, but they will always follow the same basic concepts.

  • Spot Forex – This is the most common form of forex trading, and the one you’re likely to have heard about the most. It is the most simple and obvious, because is refers to buying or selling a currency in a pair, and then profiting when the value increases or decreases in line with whatever you predicted. In theory, you will be buying or selling the actual asset that you’re dealing with, almost as if you’d walked down to a bureau de change.
  • Futures – Futures are agreements to buy or sell an asset, in this case forex, on a pre-determined date in the future. The price is also agreed beforehand. With a future, traders are obliged for the transaction to go ahead when the contract expires. However, futures are often used as speculation, and it is generally popular for positions to be closed before they actually reach the point of expiry.
  • Options – Options are similar to futures in that they refer to a future buying or selling of a currency. The major difference however is that options give the trade the option to make the trade on the date specified. If they do not want to go ahead, then it is not necessary. Options are popular with those who look to hedge uncertainty in a currency.
  • CFDs – Contracts for difference are another type of future transaction, though no asset purchase or sale actually takes place. Instead, the contract time is agreed, and then when it expires, the difference between the value at the time the contract was taken out, and the time at expiration, is exchanged. This makes it very easy to go long or short on any currency. CFDs are not available in all countries, most notably in the United States.
  • Spread Betting – A very popular method of speculation in countries where it is legal, financial spread betting is very similar to its counterpart in sports. Essentially, you wager a particular amount of money on each point by which a currency price moves in the direction you have chosen, whether short or long. Considered gambling in many countries, it is illegal in the United States, but exempt from tax in the United Kingdom. Costs are incurred for each day over which the position is held.
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