Traders in Forex Market came up with a number of different ways to invest or speculate in currencies. Among these, the most popular ones are
- Spot Forex,
- Currency Futures,
- Currency Options, and
- Exchange-Traded Funds (or ETFs).
These are Futures Contracts on currencies, which are bought and sold based on a standard size and settlement date. FX Futures were created by the Chicago Mercantile Exchange (CME) way back in 1972. The CME Group is the largest foreign currency futures market. They offers futures contracts on G10 currency pairs as well as emerging market currency pairs and e-micro products.
Since Futures Contracts are standardised and traded on a centralised exchange, the market is very transparent and well-regulated. This means that price and transaction information are readily available.
Foreign currency options give the choice holder the right – but not the obligation – to buy or sell a hard and fast amount of a foreign currency at a specified price on or before expiration date. If a trader “sold” an option, then he or she would be obliged to shop for or sell an asset at a selected price at the expiration date.
There are some disadvantage in trading FX Options. Those are as follows,
- Market hours are limited for certain options.
- The liquidity is not nearly as great as the futures or spot market.