Kinds of Foreign Exchange Market

The foreign exchange currency markets allow buying and selling of various currencies all over
the world. Business houses and banks can purchase currency in another country in order to do
business in that particular company. The forex market also known as FX market has a worldwide
presence and a network of different currency traders who work around the clock to complete
these forex transactions, and their work drives the exchange rate for currencies around the world.
Since the foreign exchange currency market is one of the biggest markets of the world, the
market is sub divided into different kinds of foreign exchange market. There are different
features and characteristics associated with the different foreign exchange markets have different
trading characteristics. The main three types of foreign exchange markets- the spot foreign
exchange market, the forward foreign exchange market and the future foreign exchange market
are discussed below. Youll get detailed information regarding different forex currency markets
types below:
Spot Market
The spot kinds of foreign exchange market are those in which the commodity is bought or sold
for an immediate delivery or delivery in the very near future. The trades in the spot markets are
settled on the spot. The spot foreign currency market is among the most popular foreign currency
instrument around the globe, contributing about 37 percent of the total activity happening in all
other types of foreign exchange markets. Spot forex currency markets types are opposite to other
kinds of foreign exchange market such as the future market, in which there is a set date is
mentioned.
The perfect example of most common kinds of trades of spot foreign exchange market is forex
contracts. If these contracts are not settled immediately, the forex traders would expect to be
compensated for the time value of their money for the duration of the delivery. The important
point to note is that these contracts are settled electronically thus making forex markets
essentially instantaneous. The spot forex currency markets types are considered to be highly
paced markets and volatility and quick profits and losses are its important features.
A spot deal in foreign exchange market comprises of a bilateral contract between two parties in
which a party transfers a set amount of a particular given currency against the receipt of a
specified amount of another currency from the counterparty, based on an agreed exchange rate,
within two business days of the date when the deal gets finalized. However, there is an exception
in case of Canadian dollar. In Canadian dollar, the Spot delivery happens the very next business
day. The name spot does not mean that the currency exchange happens the same business day on
which the deal is executed. Forex currency transactions which require delivery on the same day
are called as cash transactions. It is interesting to know that the two day spot delivery has been in
place since long before there were any technological breakthroughs in information processing
facilitating the instantaneous transactions. This time period was required to check all the
transactions details among the participating companies. Despite the technological breakthrough
in forex trading markets, the contemporary markets dont find it necessary to reduce the time to

make payments. Because human errors still happen and time is required to fix the errors, if any
before the delivery. In case of wrong deliveries happen in a spot deal in foreign exchange market,
the fine is imposed.
The most traded currency in spot types of foreign exchange markets in terms of volume is US
dollar. The reason being is that U.S. dollar is the currency of reference. The other major most
common currencies traded in spot markets are the euro, followed by the Japanese yen, the British
pound, and the Swiss franc.
Forward Market
The forward Forex currency markets types comprise of two currency trading instrumentsforward outright deals and swaps. The swap currency deal is different from the other kind of
forex instruments in a way that it consists of two deals, while all other transactions consist of
single deals. A swap is a combination of a spot deal and a forward outright deal. Generally,
forward foreign exchange market deals in cash transactions only. This is the reason why the
transactions of the forward types of foreign exchange markets are separately analyzed. Based on
the data shared by the Bank for International Settlements, the percentage share of the forward
kinds of foreign exchange market was 57% in the year 1998. The forward markets have no set
terms with regard to the settlement dates and this range from 3 days to 3 years. The volume in
currency swaps longer than one year tends to be light but, technically, there is no impediment to
making these deals. Any date past the spot date and within the above range may be a forward
settlement, provided that it is a valid business day for both currencies.
The nature of forward types of foreign exchange markets is decentralized, with participants from
all over the world entering into a different types of forex deals either on a one on one basis or
through forex brokers. In contrast to this, the currency futures Foreign exchange market is a
centralized one and where all the deals are executed on trading floors provided by different
exchanges. Whereas in the futures market only a small number of foreign currencies are traded in
multiples of standardized amounts. The forward types of foreign exchange markets are open to
any currencies in any amount.
Futures Market
Future Forex currency markets types are specific types constitute the forward outright deals
which in general take up small part of the foreign exchange currency trading market. Since future
contracts are derivatives of spot price, they are also known as derivative instruments. They are
specific with regard to the expiration date and the size of the trade amount. In general, the
forward outright deals which get mature past the spot delivery date will mature on any valid date
in the two countries whose currencies are being traded, standardized amounts of foreign currency
futures mature only on the third Wednesday of March, June, September, and December.
Future kinds of foreign exchange markets have many features, which attracts traders to future
markets. The first thing is that any one can trade in future market. It is open to all kind of traders
in foreign exchange market including individual traders. This is the difference between the future
foreign exchange market and the spot foreign exchange market, since spot market is closed to

individuals traders except in case there are deals of high net worth. The future forex currency
market types are central markets, just as efficient as the cash market, and whereas the cash
market is a much decentralized market, futures trading take place under one roof. The futures
market provides various benefits for currency traders because futures are special types of
forward outright contracts which corporate firms can use for hedging purposes.
Although the futures and spot markets trade closely together, certain differences between the two
occur, thus giving away the arbitraging opportunities. Gaps, volume, and open interest are
important technical analysis tools solely available in the futures markets. Because of these
benefits, currency futures trading regularly attract a large number of forex traders into this
market. The traders who are outside the exchange can have the idea about the prices from on-line
monitors. The most common pages regarding future markets are available with Reuters, Bridge,
Telerate, and Bloomberg. The rates are presented on composite pages by the Telerate, while the
currency futures are represented on individual pages showing the convergence between the
futures and spot prices by Reuters and Bloomberg.