World forex market is unique in many senses. The trading procedure and strategies differ considerably in currency trading to stock and funds. In FX market, the trades can be executed in two different ways namely spot forward trading.
Spot FX trading is the normal and wellknown forex procedure which constitutes a vast majority of daily currency trades. The procedure refers to the immediate delivery of off the currency. But in reality the settlement is completed within 2 days of the execution to cover all transactions and paper works involved. The trades are executed over-the-counter that is directly between the buyer and seller of the currency. The market is open global and open 24 hours a day on workdays from Monday to Friday.
Forward FX trading is much more like futures. Here the trader trades the currency pair for a future settlement date that can be days, weeks, months or even years. But most of these deals have settlement dates within 61 days (2 months). There are two types of quotes available as outright quotes where the price of actual or standard dates are quoted and broken date quotes where any dates other than the actual maturity date is quoted.
Most of the retail spot forex trading is for the speculative or commercial purpose but most of the forward FX trades are for custom goals like hedging risks, meeting any specific cash-flow requirements, and for the purpose of replacing existing spot forex position with a new rate forward FX position. This is one of the reasons that make forward FX much low popular than spot FX.
Some experienced retail forex traders now like to implement a combination of spot and forward FX strategy. The goals are to combine both markets for better control over trades, better money flow and for minimizing the risks involved. Spot FX has very high levels of downside risks because of the high leverage brokers offer, interest rate changes of currencies, overnight slippage on open positions and central bank interventions to regulate exchange rates. So using Forward FX on same or related currency pairs can give you much protection from swift rate changes.
The combination of spot and forward FX trading can also help the traders to easily overcome short-term market movements and accidental stop-loss executions to trade with a more long-term prospective if they are confident about that. But Forward FX needs good planning and implementation and often not suited for new traders. For beginner traders option contracts on forex contracts can be a low expense but high protection instrument.
This article is written for Orient Financial Brokers, leading Dubai Forex Broker offering services to traders across middle-east. OFB also offer online forward FX trading services to help traders to achieve different trading goals and to minimize trading risks.
Article Source: http://EzineArticles.com/?expert=Russel_Rashid
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