Forex Market Trading – Spot, Futures and Forward

There are three types of forex trading activities.  More specifically, there are three forex markets that you can trade on.  There is the spot, futures and forward markets.  They all have their own unique characteristics.

Spot Market

The spot market is where you trade the actual asset.  That means you are trading, that means buy and selling, real currencies at the current market rates.  This is the same as going to your local currency exchange broker and exchanging money.

This market used to be only accessible to large investment firms.  With technological progress and the internet, retail traders can now get in on forex investing in this large market.  It is no longer the field of just the big guys.

With this, retail speculators have flooded into this market.  It is the largest market in the world, trading around $4 trillion per day.  If you compare that to the NYSE’s $200 billion a day, it doesn’t come even close.  This might surprise you since the media focuses most of it’s attention on the stock market and not the forex market.

Futures Market

This is where retail investors had to get in on the forex trading game.  Therefore, all of the forex trading strategies that were touted used to be in the futures market.  This is no longer the case.

This is an open market where you can trade contracts to exchange certain currency pairs at specific prices.  It works sort of like an option with expirations and locked in prices.

Forwards Market

The forex forwards market is an over the counter market, also known as the OTC market.  That means that it is an agreement made by two parties directly without the intermediary of an open exchange platform.  This is usually still done by big players.

Forex trading can be done in these three categories of markets.  Retail investors are no longer required to trade only in the futures market.  They can now trade with the major players in the forex spot market.