Financial Instruments
Spot
A spot transaction is a two day delivery transaction (except in the case of trades between the US Dollar,Canadian Dollar,Turkish Lira and Russian Rubble,which settle the next business day),as opposed to the future contracts,which are usually three months.This trade represents the "direct exchange" between two currencies,has the shortest time frame,involves cash rather than contract,and interest is included as agreed upon transaction.The data for this come from the spot market.Spot transactions has the second largest turnover by volume after swap transactions among all FX transactions in the global FX market.
Forward
One way to deal with the foreign exchange risk is to engage in a forward transaction.In this transaction, monet does not change hands until some agreed up on future date.A buyer and seller agree up on an exchange rate for any date in the future,and the transaction takes place on that date,regardless of what market rates are then.The duration of the trade can be one day,a few days,months or years.Usually the datye is decided by both parties.
Future
foreign currency futures are exchange traded forward transactions with standard contract sizes and maturity dates,for EX,$10000 for next November at an agreed rate.Futures are standardized and are usually traded on an exchange created for this purpose.The average contract length is roughly 3 months.Future contracts are usually inclusive of any interest amounts.
Swap
The most common type of currency transaction is the "currency swap".In a swap two parties exchange currencies for a certain length of time and agree to reverse the transaction at the later date.These are not standardized contracts and are not traded through exchange.
Option
A foreign exchange option where the owner has the right but not the obligation to exchange money denominated in one currency into another currency at pre agreed exchange rate on a specified date.The FX options market is the deepest,largest and most liquid market for options of any kind in the world.
Exchange-traded fund
Exchange-traded funds are open ended investment companies that can be traded at any time throughout the course of the day.Typically,they try to replicate a stock market index S&P 500.
