TYPES OF OPERATIONS IN THE FOREIGN EXCHANGE MARKET
TYPES OF OPERATIONS IN THE FOREIGN EXCHANGE MARKET
You can sort the foreign exchange market in response to the types of transactions that occur in it.
- Cash transactions: In terms of the currency market, spot transactions or spot are those in which one currency is exchanged for another at a specified price, with the obligation to deliver both participants in the respective amounts of money, not more later than two business days (Saturdays are not considered as such), after the operation has taken place.
In technical terms, the payment date and value date is called spot lies in two working days after the closing of the transaction for practical and administrative reasons.
Currency markets are global markets and therefore must overcome the difficulties posed by the existence of temporary differences between markets with different time zone, so that a value date same day or next day would not be operational.
- Transactions of term: Any transaction in the currency market that involves delivering them in more than two working days after the operation have been carried out is called forward transaction term. Rarely price currency spot price coincides with the future or forward (forward price), influencing this disparity two main factors:
a) the difference in interest rates of the respective currencies
b) the upward trend or downward own currency
b) the upward trend or downward own currency
Normally, the difference in the interest rate influences a predominantly in the forward rate. At other times, however, when it is known to the market that a devaluation or revaluation of a particular currency is imminent, the price of term will move according to the expectations that the market has of that particular currency, dragging behind it the type of interest.
We have already mentioned that normally the forward or futures prices are different spot or cash prices, if this happens it is possible that the forward price exceeds the spot, so it is said that forex trading at premium to term and, if the spot price is higher than the forward price, we can say that the currency trades at a discount. Normally weak currencies trading at a discount to the strong, trading at a premium against these weak.
These premiums and discounts are obtained from the interest spread for each currency specified period.
In turn, the transactions of time can be divided into operations to direct term (outright), which consist of simple forex trading for delivery on a future date and are used generally by non-financial companies and insurance exchange; and swap transactions involving the purchase or sale of foreign currency and its simultaneous forward sale or purchase for cash, used by banks and savings banks for financing and placement respectively of defects and excess cash in different currencies.
Tom operations are also included - next, swap mode in which the first part of the transaction is valuable business day following the hiring, while the second part is a cash transaction. Forward or term - - term, involving the purchase or sale of foreign currency and its simultaneous forward sale or purchase to a different period and involving, as swap a pick and place also in this category include forward transactions of funds in two different currencies, but deferred until maturity of the operation nearest term.
- Transactions future: those transactions are contracted direct term standardized manner in organized markets, but not previous operations that are traded on OTC.
- Transactions of options: those transactions in which the holder or buyer acquires the right, but not the obligation, to make a purchase or sale of one currency against another issuer or seller. The options are contracted in both organized and unorganized markets, differentiating, among other things, standardization or not the terms of the contracts markets.
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