Financial instruments

are contracts for assets that can be bought, traded, created, modified, or settled. Simply put, it is a legal agreement that involves any monetary value. There are a number of financial instruments that fall into different categories. In this article, we have prepared an overview of the main financial instruments in the Forex market.

Forward

is a contract between two parties that provides for the purchase or sale of a pre-specified asset at a price set in advance. Forward transactions take place on the over-the-counter market, and if the price of the asset rises in the future, you will have the opportunity to save some of the funds for investment. A forward contract can be used for hedging or speculation.

Futures

is a contract in which derivative instruments are exchanged for money at a specified future date and a fixed price. The seller and the buyer enter into a contract and adhere to the terms and conditions of the contract. These contracts provide guaranteed transactions at pre-determined prices, which reduces the risk of default. Futures contracts are mainly used for hedging purposes.

An option, or FX option,

is a financial derivative instrument that gives you the right, but not the obligation, to buy or sell an underlying asset at a predetermined price within a specified period. These contracts are used by businesses, financial institutions, and individuals to protect themselves against possible changes in foreign exchange rates. There are two types of Forex options: put and call.

Spot FX

is a transaction that takes place at the current exchange rate. This means that the purchase or sale takes place at the exact moment when the transaction is settled. The spot exchange rate estimates the value of currencies compared to foreign currencies today. Most traders use this tool to trade currencies on the Forex market when they trade through an online broker.

FX swap

is a contract between two parties to exchange interest received or paid for a position that remains open overnight. If the currency has a higher interest rate at the time of purchase than at the time of sale, the swap will be credited to the account, and if the interest rate for the purchased currency is lower, the swap will be debited from the account. Swaps are not executed if a trade is opened and closed within the same day.