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If you want to be proficient in forex trading, then you must understand the basic financial instruments that it entails. Below is just a few of those instruments.

Careful selection has been made to make sure that they provide the widest coverage. But that is only a primer. For a more detailed discussion, the reader is encouraged to read several articles in proper order.

Spot Transaction

As the name suggests the transaction is short lived. This is usually undertaken and completed in short time frames. In other words there is a direct exchange, rather than a protracted agreement or futures contract. As a general rule the transaction has a two (2) day delivery rule. By means of exception, the transaction can be shorter, usually within the same business day, if undertaken with the Canadian Dollar, Euro, Russian Ruble, US Dollar and Turkish Lira.

Forward Contracts

This transaction is agreed upon today and delivery will be in the future; hence the term “forward”. In most cases there is no currency that changes hands as of the moment. There will be, but on a future date that is determinate or determinable. How far can the completion of the contract be in the future? It can be as short as a day, a few weeks, a few months, to even several years, provided all parties agree to the same.

Swap Transaction

These contracts are usually unregulated and not standardized. The strength of the contract and its compliance lies in the agreement between the parties. Simply put, parties to the contract agree to exchange currencies and then provide as a condition the future time for its reversal. This future time may be specific, determinate or determinable. In most cases there is a deposit required. Some even require that a security fund be held in trust to assure compliance or answer for default.

Futures Contract

These are forward contracts that are standardized and traded within a regulated exchange. There is no specific timeframe for its completion. Some experts believe that the median timeframe is roughly 3 to 6 months.

Foreign Exchange Option

FX option for short or option contract is a derivative contract. It is an agreement between parties for the absolute right to exercise a right BUT not the duty to comply with the same at a future determinable or determinate date. Option contracts can refer to a call (buy) or a put (sell).

In Closing

If you have an online forex trading platform, then make use of it. There is a veritable library of information that one can find on the internet. You do not even have to pay for one. All you have to do is go to the frequently asked questions (faq) section of online providers. You can also enrol in demo accounts which are free for a specific period of time, and then educate yourself extensively before the demo period expires. Remember, forex trading is not a game; it is a money making endeavour that should be treated as such.

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