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Chapter 1, Part V. And what is beyond spot FOREX? Page 4

Discussion in 'Complete Trading Education- Forex Military School' started by Sive Morten, Dec 14, 2013.

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  1. Sive Morten

    Sive Morten Special Consultant to the FPA

    Aug 28, 2009
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    Options are also a contract with future date of execution. It’s not a spot kind of trade. It is different from any other types of contracts, since the rights and obligations of buyer and seller of option are different. The buyer of option has right but not an obligation to exchange one currency into another one at a pre-agreed exchange rate on a specified date. But the seller will have to do the transaction (seller has an obligation) if the buyer will ask him to fulfill it. Options exist as both an over-the-counter FX option market as well as an exchange traded one. Options on many FX pairs are traded on the Chicago Mercantile Exchange. As you already know, exchange traded options are highly structured as are futures.

    Pipruit: Hm, sounds strange. It sounds unfair. Why does the seller have an obligation but the buyer has no obligations, just rights?​

    Commander in Pips: The reason for that is in price of option, also known as the premium. The buyer has to pay a premium to the seller to get such a feature. In other words, the buyer purchases these choices to have only rights but not any obligation by paying the option premium to the seller. The buyer then has the option to exercise the contract on the specified date.

    Pipruit: Oh, that explains it. Now it sounds more logical.
    Commander in Pips: And the last type of possible FOREX trading is ETF


    ETF’s or exchange traded funds are a relatively new approach to trading. These funds can be invested in different markets – stocks, bonds, currencies, commodities, real estate etc. Some of them can invest in many different assets simultaneously. The shares of these funds are traded at different exchanges. If you, for example do not want to trade FOREX personally, or do not have sufficient confidence for that yet, you may buy shares of some ETF that invests in the FOREX market. In this case, if this ETF does well and its assets will grow during the time - you will receive profits, because the shares of this fund also will rise in price. Also take a note that ETFs are traded only via exchanges. It means that this market has time breaks and does not operate in 24/5 mode like spot FX. Liquidity there is also lower than on the spot FOREX market and transaction costs are higher.

    Pipruit: Sounds interesting, but I’d like to try the FX spot market personally.
    Commander in Pips: Be patient. We’ll get there. If you understand the FOREX market first, you are more likely to make money than to give it all away.

    P.S. This lesson was written by Sive Morten, who has been working for a large European Bank since April of 2000, and is currently a supervisor of the bank's risk assessment department. Sive's knowledge of forex market and banking industry is vast and quite complete. If you have any specific questions about forex, banking industry, or any other financial instruments, please post them on the next page and Sive should answer them soon.

    Note: FPA ranks are earned in the battles against scam, not in the classroom.
    #1 Sive Morten, Dec 14, 2013
    Lasted edited by : Feb 3, 2016
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