2 Alternatives To Spot The Foreign Exchange Market
What many Forex traders don’t know is that there is actually more than one type of Foreign exchange market to trade on. Yes – most brokers will only offer one (the spot Forex market) – but there are a few Fx brokers out there who have flexibility as to the market that you are able to trade on.
In this article, we’ll take a look at the other Forex markets, and try to examine the difference between them and the spot market. This should provide you with a better idea of exactly which market is best for your style of`type of trading.
The Forward Market
The Forex forward market is an entirely separate market from the spot. You’ll find that when looking at currency pairs in the forward Forex market, the quotes are completely different to those found on the spot rates.
This is a function of what the market is actually providing. As you might have gathered from the name of the forward market – this specific arena is offering rates to buy foreign currencies in the future. There are many of different quotes for different time frames. For example, the following time scales might offer different rates to trade at:
* 1 month
* 3 months
* Six months
* 1 year
Many spot Forex traders utilize forward rates to help them predict the future movements of a particular currency pair. The truth is that a 12 month forward Forex rate is the price that traders expect the currency pair to be trading at on the spot market in twelve months time, and so this is often a good measure of the future moves of the market.
Swap Rates
Another market entirely separate from the spot and forward Forex markets is the Swap Market. This market is used in complex currency trades, which are often far beyond the requirements of mainstream retail spot traders.
Swap rates are those which are used when transferring real currency from one country to another, without the need to actually convert the currency. Whilst the swap rates are often similar to spot market Forex rates, the swap market also has time scales like the forward market.
Swap rates are used by large corporations trying to hedge their overseas exposure, or by importers and exporters who do not want to trade a particular currency pair at the current time, but still need to pay their counterpart in another country. Often, the swap market doesn’t even get a mention by Fx brokers because of its complexity.
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