What are currency futures?

Futures currencies are contracts traded to buy or sell a specific currency at the future date at a predetermined price by the market. Unlike the "spot" Forex transactions, which are short -term contracts carried out through the interbank system, the futures currencies of longer -term contracts are carried out primarily at the Chicago Mercantile Exchange (CME).

Forex trading, which occurs in live time, is referred to as the "spot" of the market. Forex transactions on the spot market usually settle within two days. The foreign exchange market, more often referred to as the "FX" or "Forex" market, is an interbank system in which investors and corporations can trade currencies. The volume on the Forex market is the largest market in the world, with more trillion dollars on it daily. However,

currency futures were first created in 1972 CME traders who had no access to the interbank system. The decision to create futures on the currency was a direct result of two historical development. In 1970 The US left the gold standard, allowing the price of the dollar to "float" on the market rather than setting at a fixed rate. Subsequently, other countries followed a lawsuit, which also made it possible to float their national currencies, which also created a real market for foreign exchange. In response to these historical changes, the international money market (IMM) was created for the primary purpose of the monetary futures contracts. Two more exchanges dealing with futures on currencies are Tokyo Financial Exchange and Euronext.liffe.

Unlike forex spot transactions, the size of the contracts is very different in terms of amount, currency futures traded in contracts of standardized amounts with maturity. Usually three months are standard time length on currency futures. Futures contracts of this type always include the exchange of two currencies. For example, an individual could buy a contract to buy 100 000 EUR for a specified price and sell the corresponding amount of US dollars. An individual from this transaction will benefit if the price of the euro increases with respect to the US dollar. Conversely, if the dollar is strengthened in relation to the euro during the contract, the individual would lose money reasonable disparity of exchange rates.

Two types of entities that are most likely to be involved in monetary futures would be Hedgers and speculators. Hedgers are most often corporations that want to minimize their foreign exchange risk. Especially for companies trading abroad, the fluctuations of exchange courses can significantly affect the profitability of their businesses. For example, if a German car manufacturer plans to produce and send vehicles to the US in three months if the dollar decreases against The Euro in intervening months will result in the loss of the manufacturer's equivalent difference between the two currencies. However, if the German manufacturer concludes a futures contract on the currency, he can now lock his required dollar rate andwhich in the near future ensures it against volatility in the currency.

speculators, another main player on the market futures, will attract a short -term view of the markets. The aim of speculators is to buy and sell currencies in relation to each other in the hope that they benefit from fluctuating differences between currencies daily. Futures contracts grow and decrease daily with the exchange rates on which they are based. Speculators buy and sell contracts of different currencies and willingly take the risk to obtain profit during exchange.

both Hedgers and speculators are used on the futures contracts. However, both entities see their different motivations to see the forex market from another perspective. Hedgers use currency futures as a defensive mechanism to protect themselves from risk, while speculators deliberately take the risk to achieve gain by predicting trends and currencies in relation to each other.