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Spot Forex Trading

spot forex tradingThe forex (foreign exchange) market is a several trillion dollar market that is open almost all the time and is traded over the counter meaning that it is largely unregulated and is not tethered to one of the public stock exchanges.  Your exposure to this market has probably come, at least at some point in your life, in spot forex trading.

Spot is the immediate exchange of one currency for another.  For instance, if you hand your American credit card to a bartender in Europe to pay your bar tab, they swipe the card, and the funds are instantly converted to the local currency using the day’s published exchange rates.

Although your bank will make a little money by charging you a fee for the exchange, there is virtually no way for most individuals to make money with SPOT trades.  However, another sector of the market that many day traders find interesting are options.

By getting involved in options, traders can draft a plan to buy a certain currency with another currency for a certain rate on a certain date or within a certain time frame.  For instance, they may decide that on a certain date they will trade 1 EUR for 2 US dollars.  If the real exchange rate on that day is 1 EUR for 1.98 USD, then they make 2 US cents for every Euro that they spent.  Looking at it from the other angle means that for every dollar they spend they make .005 Euros.  However, the amount to be exchanged is also decided upon when the original option is written.

Because most options are not set on a particular date but over a time frame, it is possible to cash your option in as soon as it becomes lucrative or to let it ride and hope that it will make money.  In order to effectively monitor your options, you will want to get frequent alerts for the best forex trading strategies to work.

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