If you want to trade Forex, there are several instruments you can use depending on your trading strategy and market outlook.

The vast majority of foreign exchange transactions are conducted by large institutions through the interbank market, often involving hundreds of millions of dollars in transactions. However, with the advent of online Forex trading platforms, retail traders have also been able to participate in the currency market.

Spot Forex Contracts

Spot trading, which accounts for $2 trillion of the total foreign exchange market, is a direct agreement between two counterparties to buy one currency against the sale of another, to be delivered at an agreed price on a set date.

Retail investors do not trade on the spot market. Unlike other instruments such as futures, options, and exchange-traded funds (ETFs), which are traded on centralized exchanges, spot forex contracts are traded between counterparties in the over-the-counter market.

The main spot forex market is the so-called "inter-dealer" market, where forex dealers trade with each other. It is also known as the "interbank" market, since banks act as the main dealers. The "inter-dealer" market is only available to institutions such as banks, insurance companies, pension funds and large corporations that trade large volumes of currency.

Currency Options

Options are financial instruments that give the right to buy or sell an asset at a set price on a specified date. If a forex trader purchases an option, he can buy the currency at a set rate on a specified expiration date.

Unlike spot forex contracts, currency options and futures can be traded on exchanges. It is worth noting that currency pairs will not be traded on exchanges around the clock (recall that the forex market operates 24 hours a day), but only during the trading hours of the platform. In addition, liquidity in forex trading on the exchange is lower than in spot and futures markets.

Currency Futures

Currency futures were created by the Chicago Mercantile Exchange (CME) in 1972 and continue to be traded on exchanges today.

Futures are contracts that obligate a trader to buy or sell an asset at a set price on a specified date in the future. While an option allows traders to act at their own discretion, futures actually obligate traders to make a trade. Forex traders use futures to speculate on the value of a currency on the expiration date of the contract.

Currency ETFs

Exchange-traded funds (ETFs) are a type of investment fund that are available for trading on stock exchanges throughout the trading session, unlike mutual funds, which set a price once a day. Currency ETFs offer investors exposure to a currency pair or basket of currencies without having to manage individual trades in the forex market.

Financial institutions manage currency ETFs by buying, selling, and holding currencies. They offer investors shares of the fund, allowing them to trade the fund like shares. Like options and futures, ETFs are only available for trading during exchange business hours. Keep in mind that currency ETFs charge investors commissions and transaction fees.

Retail Platforms

Individual investors cannot participate in spot forex trading, but there are trading platforms that provide retail traders with access to the secondary over-the-counter market.

Forex trading providers are financial institutions that participate in primary market trading on behalf of individual traders. They add a markup to the primary over-the-counter prices to cover the cost of their services. So, instead of trading the currency, the retail trader buys or sells a leveraged currency contract. They cannot take delivery, so the contract is rolled over at expiration. Keep in mind that trading on leverage can result in significant gains as well as losses.

Contracts for Difference (CFDs)

Due to the large volume of trading, most brokers are not very accommodating to currency traders unless they can invest large sums in spot or derivatives trading. However, individuals can trade currency pairs using CFDs on online trading platforms.

Artcap offers CFD trading on currency pairs. What is it?

CFD is a derivative financial instrument, which is a contract between an investor and a broker. According to it, one party agrees to pay the other the difference in the value of the asset at the time of opening and closing of the trade.

This gives the trader the opportunity to speculate on the price of a currency pair in any direction of its movement.

For example, if you think that the euro will rise against the US dollar, you can open a long position on the EUR/USD pair.

If you think that the euro will depreciate against the US dollar, you can open a short position on this currency pair.  

We wish you successful trading with ArtCap !