Forex instruments (types of transactions)

There are six types of transactions that take place in the foreign exchange market. They are the instruments of foreign exchange market. They are:

spot transactions
they involve exchange of currencies two day after the date of deal. The rate of transaction is known as spot rate. Spot transactions account for 60% of foreign exchange market.

Forward transactions
They involve exchange of currencies three or more days after the date of deal. It is transaction for future delivery. The rate of transaction is known as forward rate. The forward rate is used to settle the forward transaction. Forward transactions account for 10% of foreign exchange market.

Fx swap transactions
They involve simultaneous spot and forward transaction. One currency is swapped for another on one date and then swapped back on a future date. Swap transactions account for about 30% of foreign exchange market.

Currency swaps
They deal with interest-bearing bonds. They involve the exchange of principal and interest payments. They are over-the-counter instruments.

Options
They are the right to trade foreign currency in future. They are not obligations. It can be traded over-the-counter or security exchange.

Futures
It is an agreement between two parties to buy or sell a particular currency at a particular price on a particular future date. A contract is entered. It guarantees a future price for the trading of foreign exchange.