The FX market is comprised of investment management firms, banks, corporate companies, hedge funds and also the off-exchange retail brokerage set ups. Fx is not a mere exchange. It is moved by a global participation which makes for huge exchanges. It is natural that anything huge will diversify. Let us discuss the foreign exchange Futures within this article.
Forex futures deal with buying or selling contract of a particular amount of a pair at a specific price on a pre-allotted day. Unlike forward contract, a stock needs to be brought in whole volumes and can be obtained through decentralized brokers operating off-exchange. Forex futures might only be one percent of the total forex trading but it is preferred a lot for its speculation and hedging features.
Forex futures are traded through “contract per size” and are generally dealt from Chicago Mercantile Exchange. For forex trading in futures, you need to buy a lot but there are many other specifications on which your broker needs to pre-inform you. These may be contract sizes, pricing limits, trading hours and time increments. There are many other information as well which need to be partaken by the broker.
A forex futures sheet also talks about the last trading day. This can be written over the sheet as “trading ceases at 9.40 am Mountain Time on the third business day from the fourth Wednesday of the present month”. The final settlement price is generally offered by the flooring pit committee and the contract is delivered physically.
The term hedging implies insuring oneself against a loss. Forex futures use the concept of hedging to reduce or eradicate any chance of loss owing to future price movement of currency. Hedgers are very conservative players. They like to sit on idle positions but would not be tempted by a high-profit, high-risk venture. It’s against their trading style. Quite opposite to the hedgers are speculators. They will take any risk which is beyond their ambit but will look to make huge profits. By their very nature, it is implied that these people can make huge profits or run for cover.
While getting started in forex futures, it is important to understand that hedging can be a great tool in cancelling the effect of currency drift on sale revenue. A trader can also look to go with the forward contract rather than futures contract while hedging. Forwards can be procured in small contract sizes. Thus they offer more options. A trader can look to buy only as much which can help him hedge. With futures, one tends to over hedge at times. If you know all about hedging and speculation, Futures is all there to be grabbed.