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Conversion operations
Conversion operations called transactions of the currency market participants who have decided to exchange different currencies at an agreed to by both parties in the course of implementation of settlements on a certain date. We can say that conversion operations are transactions of sale and purchase of currencies. A feature of this type of exchange is the lack of temporal extent of the agreement. In other words, the exchange occurs at a specific point in time. 

The separation of the conversion operations, you can spend time:

1. spot (current conversion operations)
2. forward (urgent conversion operations

Conversion operations on a spot - market

The spot - market (spot market) is an international market of current conversion operations which are carried out with value date on the second business day after the transaction. These types of deals are fairly comfortable for participants as it allows you to slowly prepare all the formalities of the exchange.

If we talk about the Forex market, it is a feature of the data conversion operations is the value date, i.e. the date of delivery of the agreed volume of currency in relation to the date on which the transaction occurred. It turns out that transactions of the type often used for spot Forex. Of course, that individual traders do not use spot, because they are more convenient to work with a snapshot of the deal. The time value when this is already possible not to consider.

Types of conversion operations

Swaps, futures, options, forwards relate to forward FX transactions. They also not infrequently called derivative financial instruments. The main objective of forward operations can be considered to mitigate possible risks. Traders who use instant execution positions, almost deprived of the assistance from the financial instruments.

Forward contracts do not make sense for individual traders, as suggesting a specific date and exchange rate that will not change neither the timing nor the cost. The changes in market prices will not play any difference. No restrictions on the date of exchange and the amount of it is not. The parties may agree on any day and in any amounts.

A simple example of forward conversion operations large company intends to purchase from another organization in another country of the goods for the certain sum in monetary units of the country of the seller. It is likely that the buyer will not be able to quickly find the necessary capital in the currency that is needed to perform the operation. In this case, the buyer can change their banknotes on those in which it is necessary to carry out the payment, and can realize a Bank loan.

Both organizations agree on the date of purchase and price that will not change under any circumstances, unless it was otherwise specified. If the buyer used a Bank loan to carry out a refund you will need some time. By the time the currency in which the loan was held, probably, will change. Thus, the buyer may spend more or even less on the repayment of its loan, given the change in the exchange rate.

Futures, options and swaps

• Futures from forward contracts is the difference between full maturity and set the size of the number of currencies. Thus, futures are traded in the same way as securities. Each futures contract has its period of duration is several months.
• When working with options trader will notice significant similarities with the futures trading. The distinctive feature of options trading is the ability at any time to cancel the transaction. We can say that the obligation of the party to the transaction is not so hard than in the futures market.
• Swap is one of the varieties of conversion operations. A feature of this operation is necessarily a repetition of the shopping transaction in the opposite direction. For example, if one of the parties to the transaction made the purchase a certain amount of currency, for example, in Forex, then after a while the second side is the same operation in the first. That is, the company first acquires a certain amount of currency the second party, and then she sells it and. Swaps, unlike previous variants, which have no separate market.
• As most of our readers are traders, recall that the Forex trading is best suited exactly spot – market. It is here that most of us, currency speculators, just works.

Category: Forex | Added by: (05.11.2017)
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