Financial instruments
Spot
Spot is a transaction that is delivered in 2 days (the only exception is the Canadian dollar). Compare with the futures the delivery term of which is 3 months. The spot is a direct exchange between two currencies with usually no interests. Moreover the spot is the most used transaction according to the volume in the Forex transactions.
Forward
This is the transaction that implies the risk. There is no money transferred until there is no agreement about future date. The seller and buyer come to agreement concerning the exchange rate for any date in the future and as this date comes the deal occur despite the fact what the current exchange rate are. The delivery period of this transaction varies from several days to several years.
Future
The futures are the forward transactions with certain period of delivery and contract size. For instance the futures can look as follows – 100,000 USD for the next August at the agreed rate. Commonly futures are traded at the exchanges established with this aim. The average term of the contract is about 3 months. Moreover futures commonly comprise all interest amounts.
Swap
Swap is the most widespread type of the forward transaction. The core of this transaction is the exchange of 2 currencies between 2 parties for an agreed period of time after that the parties agree to reverse the deal for another period of time. Swap contracts in contrast to futures are not standardized and not traded via an exchange.
Option
A forex option (FX option) is a derivative that enables but not obliges the owner to exchange money expressed in one currency into another currency at the before agreed rate and date. The market of Forex options is the largest and most liquid one for the different types of options.
Exchange Traded Fund
Exchange traded funds are the Open Ended investment companies. The ETF can be traded at any time of the day. The ETF is the attempt to copy the stock market index like S&P 500. However throughout the last time ETFs replicate investments in the financial markets and thus increase its value. Some of such funds watch the changes of the other currencies rates in relation to the USD and their value changes in opposite to the USD direction thus causing the speculation in the United States dollar.
