You may know the terms futures, ETFs, CFDs, etc. Most of the brokerages offer these services, not only forex trading. Let’s see the explanation below.
Spot Forex
It means trading one currency for another. And the trader will be back again after a profit or loss. It’s simple and no more complicated. Here the term ‘spot’ signifies the next day delivery. The currency exchange rate you see at banks refers to the spot prices. When you take spreads and commissions into account, it is relatively cheap.
Futures
As the name indicates, it is not meant for currency trading. You buy/sell for delivery at a future date. You can fix a currency pair to buy at a future date. Time being, there will be no transaction happening at the broker’s side. If you predict the price of a currency pair would be different in the future you can buy, sell it in ‘future.’ Futures are more expensive than trading in spots. It’s because of the higher spreads and commissions involved. It’ll be helpful if you go for a very long-term trade. And also the price movement would be more volatile than in spot forex.
CFDs
CFD is the abbreviation for “Contract for Difference”. By CFD, you make a contract with your broker. Then money will move between you based on the movement in the price. The purpose of the CFD is to help you from buying in actual price value. And it also avoids the associated charges involved in actual sale or purchase.
ETFs
ETF is the abbreviation for “Exchange Traded Fund.” It is a fund that you can buy and sell publicly in share units as in a mutual fund. And it is based on an asset or basket of assets for your convenience. It works like a mutual fund investment. You can invest in an asset without incurring the cost and trouble that you face when you buy it actually. Know the differences in the trading instruments that are available in the market.
Each one has its advantages and disadvantages. Choose the right instruments for you and prosper in your trading.