Forward Contracts Vs Spot Currency by Brian Twomey
Here are some methods you can use to trade currency pairs that are just as or even more profitable than trading the spot market.
What most traders understand about currency trading is the basic buying and selling of currency pairs based on what the indicators will determine. These are basic trades that take place in the spot market. But in the spot market there is much more than just these basic trades. Since interest rates between two pairs are the overall driver of spot prices, there are other methods to trade pairs. Arbitrage, forward contracts, bond yield correlations, and spot differentials in interest rates, referred to as swaps, are just a few opportunities I will examine.
OPPORTUNITY FOR ARBITRAGE
Arbitrage opportunities exist to take advantage of the difference of interest rates between two nations. In currency trading, arbitrage simply refers to the simultaneous buying and selling of a currency pair to take advantage of interest rate differentials.