Types of Forex Markets

The Forex Market is a place where currencies of different denominations are traded either on that particular date or at a specified future date and time. The Forex Market is one of the world’s most liquid markets because trillions of money is traded each day here. Most of the trades happening in the Forex Market are short term and hence the liquidity element is very high in the Forex market. Mainly there are two types of markets operating in the Forex scenario. They are briefly explained below:

Futures Exchange Market

A futures exchange market, as the name indicates is a place that is dominated by futures contracts. A futures contract is a contract, where the parties of a contract agree to buy or sell a specific commodity of security at a future date and future time. All conditions of a futures contract are pre determined. The commodities that should be bought and sold, the currencies that should be traded in, the date and time that the agreement would be taking place etc are all agreed well in advance by both the partners in the agreement.

On the day of contract, the transaction takes place irrespective of the Forex rate that is prevailing on that particular day. Hence it is very important to decide the day of transaction. The traders have to be shrewd enough to follow the stock market patterns and then decide the date. A slight miss could result in huge losses in the Forex market.

Retail Forex Market

The retail Forex market is a part of the huge Forex market. Many retail Forex markets put together form a whole Forex market. Only two denominations of currencies are traded in the retail Forex Market. One country’s currency is always traded or fluctuated based on another country’s currency. All the components explained above for a futures market hold true in the case of the retail market as well, because, the retail market is only a sub division in the huge Forex market. The financial instruments like forwards, futures, spot, options, swaps etc are all followed in the Retail Forex market as such.

Since volumes traded in the retail market are less, the retail trader has to be very careful while doing trading. The currencies are always traded in pairs and hence the pattern of the currency movement must be studied very carefully. The advantage of the retail Forex market is that, only two countries need to be closely watched at a time and not like the big market, where various currencies keep floating. The retail Forex trader must have a close eye on the economic, political and financial health of the two countries. These are the factors that affect the currency of a particular country.

Hence if these factors are kept under check, then the value of currencies can be kept at a reasonable level to earn profits at the Retail Forex Market. The retail trade purely depends on the presence of mind of the retail trader and a slight delay in following the pattern of the Forex rates can cause a huge loss.