In this article, We learn about "Currency Futures ".Let's Go!
A A currency future is a contract that specifies the price at which a currency can be bought or sold, and sets a specific date for trading.
A Currency Futures are known as Forex Futures or fForex Futures.
This type of foreign exchange derivative sets the price at which one currency will be exchanged for another currency at a specified date in the future.
Currency futures are one of the tools used to hedge currency risk.
They are heavily regulated, and any counterparty who still holds a contract at maturity is legally obliged to receive the currency on a given date and at a given price.
What is the difference between spot price and futures price?
Futures price differs from spot price because it is not based on current market value but on potential future market price.
If traders have an open position on a spot currency rate, they can use currency futures contracts to hedge.
What is the difference between currency futures and currency forwards?
Currency futures and currency forward contracts are financial derivatives that allow people to buy or sell a currency pair at a given price at a specific time.
While they are similar in nature, there are some key differences in their operation:
The main difference between currency futures and currency forwards is that futures are traded through a central market, while forwards are OTC contracts (private agreements between two counterparties).
Futures contracts have almost zero default risk because they always involve a central clearing house, while forward contracts always carry the risk of counterparty default . Some providers require clients to provide collateral to cover this risk.
Forward contracts set an interest rate with a maturity date. A futures contract establishes a daily market (mark-to-market) rate, and the daily spread is settled or included in the contract each day until the contract closes.
For investors, futures contracts are often speculative products, while forward contracts are more commonly used by companies seeking to protect themselves from currency fluctuations.
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