What is the definition of a financial instrument where the forex market is concerned? Simply stated, it is any type of a financial medium such as bills of exchange, bonds, currencies, stocks, etc. Forex trading instruments definition-traded Fund – referred to as ETF’s.
These are open-ended investment companies that have the characteristic of being traded at any time throughout the day. Forward – the agreement established between two parties wherein they purchase, sell, or trade an asset at a pre-agreed upon price is called a forward or a forward contract. Normally, there is no exchange of money until a pre-established future date has been arrived at. Forwards are normally performed as a hedging instrument used to either deter or alleviate risk in the investment activity. Future – a forward transaction that contains standard contract sizes and maturity dates are considered futures. Futures are traded on exchanges that have been created for that purpose exclusively.
Just like with commodity markets, a future in the forex market normally designates a contract length of 3 months in duration. Interest amounts are also included in a futures contract. Option – commonly shortened to FX option from foreign exchange option. Spot – where futures contracts normally employ a 3-month timeframe, spot transactions encompass a 48-hour delivery transaction period.