Different Types of Forex Trading Transactions

Spot Transactions – Spot transactions are the most common form of forex trade and literally mean trading 'on the spot' at the price quoted at the time. Remember, prices move very quickly in the forex market. At any given time the prices quotes on online forex trading platforms is the spot price quoted as both bid and offer.

Forward Transactions – Forward transactions are used when traders which to bull or sell a currency at an agreed future date. Forward transactions can be for a few days ahead or even years in the future though most futures contracts are for 30, 60 or 90 days.

These types of transactions are often taken out by companies that purchase supplies from foreign firms so that they can lock in the exchange rate for the point in the future when they take delivery of the supplies. In this way the companies can be budget for a set amount.

Option transaction – Forex option contracts are similar to forward contracts but offer more flexibility and are therefore more attractive to forex traders. Again the owner of an option contract has the right to buy or sell a currency at a given rate and time in the future but they do not have to fulfil the contract. Instead an option can be allowed to expire or lapse.

There are two types of option contract:-

• Call options – the right to buy a currency at a fixed price in the future.

• Put options – the right to sell a currency at a fixed price in the future.

Remember, whatever forex trading transactions you prefer to deal in you will need a reasonable understanding of the forex market. You should make sure you pick a good forex broker, one that allows you to practice for free using a dummy account.