1. Spot Currency Trading – This is the most important part of the foreign currency trading business. Spot currency trading usually involves two currency traders and often the buyer calls the seller. But initially the buyer will not yet reveal his intention of purchasing any currency offered by the seller. The seller should proceed to entertain the queries of the buyer and provide the necessary information. If the buyer is satisfied with the quoted rates the transaction is completed.

2. Forward Trading – This is a method that involves a long term investment. Fundamentally, an agreement to make the trade is finalized long before the actual day of exchange. Thus the parties, the buyer and the seller, would agree upon an exchange of their currencies for a specified date in the future regardless of the rates that their currencies may have by then. More often, the big companies trade in this way. It has two different types:

• Swap – This is the most common type of forward trading, where both the buyer and the seller agree to make currency exchanges for a specified period of time. Then their roles will eventually swap after the said period of initial exchange.

• Future – This is the forward trading used mostly by big companies. In future trading, a contract is drafted for the exchange with emphasis on the rates of maturity.

3. Option Trading – It is a flexible tool for starters in foreign exchange trading because, option trading is the extended version of forward trading. Whereas forward trading sort of binds the involved parties to make the specified transaction, option trading only provides the involved parties the rights to buy the currency at the agreed rates upon date or during the duration those lapses. In this system the strike price is crucial since this is the predetermined rate in terms of buying and selling.

These methods of foreign exchange trading may seem very promising to the beginners, but it is important to remember that all of them carry their own particular risk factors. Foreign currency trading is a volatile and dynamic type of business and these methods come with their own brand of advantages and disadvantages. Hence it is imperative that while using them, you fully understand their capacity first. Currency trading can be a very fluid business and these methods may also provide different risks for different transactions.

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