Forex futures is a derivative of the forex market.
However, the volume of forex futures trading is about 1%
of the total forex market. This market operates in much the same way as
traditional futures, such as for commodities: The futures are purchased on a
contract, which specifies the currency pair(s), the amount, the date of purchase,
and the price of the purchase on that date.
Although the forex market is not centralized and is
operated from various countries around the world, the majority of forex
options, including futures, are traded through the Chicago Mercantile Exchange
(CME) and its partners, including brokerages.
Currency futures trading was introduced in 1972 by the
CME. Due to the lack of access to the interbank exchange markets that some
commodity traders suffered, the International Monetary Market (IMM) was created
in the same year. The IMM is now a division of the CME, which averaged 754,000
futures contracts per day, according to 2009 reports.
Technically, when trading forex futures, the
trader is no longer trading over-the-counter (OTC). Futures are offered only in
whole numbers, unlike the spot market. It’s also important to note that all futures quotes on the forex
calendar are made against the U.S. dollar (USD).
Once you decide to trade forex futures, your broker will give you the specifics
on the transaction: contract size, time line, pip spread, pricing limits, etc.
The option to hedge or speculate on the trade should be detailed in the
contract as well. Signals also come into play here. The best forex signals may
or may not include futures signals, so examine the signal software you choose,
carefully.
Hedging and speculating are quite common on the forex
futures market. Hedging is used to neutralize or mitigate the effect that
fluctuations in the currency market have on international revenue. On the other
side of the coin, speculating is a way for traders to maximize profit potential
by incurring more risk.
The forex market alone is not without risk;
the forex futures market can involve even more risk. Although not recommended
for beginner forex traders, it pays to understand all
derivatives of the forex to get a better grasp on the market as a whole, and to
be able to anticipate trends.
Forextips.com is committed to educating the forex
trader in all aspects of foreign currency trading. Click hereto get information on a free forex webinar to help
you maximize your success in the forex market.
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