Derivatives of Forex Currency Trading

Derivatives of the foreign exchange trading system are spot trading, futures trading, forwards trading, options trading and swap trades. Many inexperienced FX traders tend to focus on spot trading. Spot transactions are over-the-counter transactions, handled outside of an organized exchange.

Spot Trading - Spot trading in the Forex trading system is what is termed Forex. A Forex currency trade is a simple simultaneous transaction that involves the exchange of one currency for another.

Foreign exchange currency trades may be settled within 2 days, except in Canada where exchanges may be settled within one-day.

There are two parties and two positions with any trade. The party who delivers a commodity holds a short position. The party who receives the delivered commodity holds a long position. In other words, the seller holds the short position and the buyer holds the long position.

There are no restrictions and limitations in foreign exchange spot trading as long as there are parties willing to a trade and liquidity in the currencies being traded.

Spot trades incur a transaction charge per trade called a margin or spread. A margin is calculated as the difference between the current bid price and the asking price.